Indian Banks Reject RBI's Moratorium Proposal for NBFCs -


To help customers cope with the Covid-19 lockdown-related economic problems, the RBI advised all commercial banks, NBFCs, cooperative banks and housing finance companies are now permitted to give a 3-month moratorium on all types of term loans.
SBI however, which is the largest bank in the country, has said officially that the moratorium applies not to NBFCs. In the same way, Indian Bank Association’s own circular does not contain the list of Non-Banking financial Corporations as beneficiaries to the moratorium. It does not consider HFCs and MFIs to be direct beneficiaries of the working capital financing.
Under the guidelines given by RBI, NBFCs can get support from banks indirectly. After all, the RBI is providing banks with liquidity support, and the banks in turn are to support NBFCs by the deployment of funds in NCDs, investment grade corporate bonds, and commercial papers.

From where can one expect help?

In this perilous state of affairs, NBFCs are knocking the doors of both RBI and the government. Right now, it all depends on the Reserve Bank of India. A directive from the RBI can force banks to comply. That, however, will be giving NBFCs an unfair advantage because many of them are as large as India’s mid-size banks. Banks are also of the opinion that NBFCs are strong players in the market’s credit intermediation since they serve the micro-segment and the self-employment sections. These are the sections that have been hit the hardest by the Covid-19 lockdown.
Right now, NBFCs are at a disadvantage as they do not have access to low-cost funds that come from current and savings accounts.
A solution may come from the RBI creating a separate window to help them. Alternatively, the government should step with some measures or guarantees.
Meanwhile, the moratorium period itself has come under question as of late. Moody's opines that the loan moratorium could cause a greater build-up of credit loss for banks. India and China have both extended such measures to deal with the liquidity crunch amid the COVID-19 crisis. Although this can provide temporary relief to borrowers, it will constrain banks from taking proactive recovery actions and could lead to an even greater build-up of credit loss once the moratoriums are lifted, reports Moody's.

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