NBFCs request RBI for Restructuring Loans and Fresh Liquidity Support during Covid-19

As the impact of the current wave of Covid-19 begins to play out, Non-Banking Financial Companies (NBFCs) have asked the Central Bank to permit new restructuring loans for customers and businesses undergoing stress in this pandemic. In a letter to the RBI (Reserve Bank of India, FIDC (Finance Industry Development Council), which is a representative body of NBFCs, has also requested for liquidity support for on-lending to minor or small businesses in India. In this article, we will discuss such requests for restructuring loans and new liquidity support.

Why is it necessary to make such requests (restructuring loans and fresh liquidity support) to RBI?

Recently, the second wave of Covid-19 is in peak time and possibly starts to come down in June. In this scenario, the Non-Banking Financial Companies will begin pitching under the pressure of high Non-Performing Assets (NPAs) while controlling the request of the suspension and restructuring from the present and worthy customers. Most of the borrowers are marginal farmers, shopkeepers, machine operators, shopkeepers, owners of workshops, taxi owners/drivers, and local contractors in the NBFC sector. Such borrowers are hit primarily by the state-wide and restricted lockdowns mandates in some major parts of the country, which are highly affected by this pandemic.

The second wave has already commenced hurting the collection of the NBFCs. The lenders also require support for delivering credit to the borrowers. Hence, the Non-Banking Financial Companies have requested the Reserve Bank of India for providing restructuring loans and offering liquidity support for advice over obstacles due to the second wave of the Covid-19 pandemic.

Requests made by FIDC – Restructuring Loans and Fresh Liquidity Support

FIDC wrote, “Considering the difficult environment for MSMEs and lenders, it will be helpful if the Reserve Bank of India extends the restructuring regime till at least March 31, 2022”. The Finance Industry Development Council requested to raise the overall support in the outlay of the Reserve Bank of India^[1] to AIFIs (All Indian Financial Institutions) from Rs. 50,000 crores to minimum Rs. 75,000 crores. It also demands an extra Rs. 25,000 crores to be made accessible entirely to the medium & small Non-Banking Financial Companies via SIDBI for three years. The present allocation for the other sectors can continue with their authorised limits.

The Finance Industry Development Council demanded the Reserve Bank of India for a single time restricting loans will make sure that such small Non-Banking Financial Companies stay eligible for additional bank finance with no mismatch in their asset-liability position and hence, help them support their wholesale & retail borrowers with new credit.

Fresh Liquidity Support

The Finance Industry Development Council also requests or demands fresh liquidity support from the Government of India for on-lending to MSMEs (Micro, Small, and Medium Enterprises). In the rise of Covid, the Reserve Bank of India announced liquidity measures of Rs. 13 lakhs crore last year.

The Reserve Bank of India had announced the TLTRO on-tap Scheme on October 9, 2020, which was available up to March 31, 2021. In addition to the 5 sectors announced under the scheme on October 21, 2020, twenty-six stressed sectors recognised by the Kamath Committee were brought within the scope of sectors liable under on-tap TLTRO on 4^th of December, 2020 and bank lending to Non-Banking Financial Companies on February, 2021.

Liquidity availed by banks under this scheme is to be placed in commercial paper, corporate bonds, and non-convertible debentures granted by companies in such sectors; it can also be used to extend bank loans and advances to such sectors. The Reserve Bank of India more extended the TLTRO on-tap Scheme by a period of 6 months till September 30, 2021.

Conclusion

The FIDC announced that the RBI has been ongoing to deliver the time for on-lending advantage by six months at the review time on an impromptu basis. The FIDC (Finance Industry Development Council), in its letter, said that it would be helpful or beneficial if the Reserve Bank of India extends its August 06, 2020 notification on one-time restructuring loans till March 31, 2020.  Hence, the Non-Banking Financial Companies have requested the Reserve Bank of India for providing restructuring loans and offering liquidity support for advice over obstacles due to the second wave of the Covid-19 pandemic.

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