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Banks divided over moratorium relief for NBFCs; to approach RBI for clarity

Banks divided over moratorium relief for NBFCs; to approach RBI for clarity

Banks divided over moratorium relief for NBFCs; to approach RBI for clarity
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By Ritu Singh  Apr 18, 2020 9:37:41 PM IST (Updated)

There was no consensus among banks on the issue of granting moratorium relief to non-banking finance companies (NBFCs) in the meeting held by the Indian Banks Association on Saturday.

There was no consensus among banks on the issue of granting moratorium relief to non-banking finance companies (NBFCs) in the meeting held by the Indian Banks Association on Saturday, five independent sources confirmed to CNBC-TV18.

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With no clear consensus, the Indian Banks Association (IBA) has now decided to approach the regulator for its directions on the matter, said multiple people present in the meeting.
IBA’s management committee meeting this afternoon to consider providing the moratorium relief to NBFCs saw participation from heads of all public sector banks, as well chiefs of Axis Bank, Standard Chartered India, Citi Union Bank, Citi India and Mashreq Bank.
The largest bank in the country State Bank of India (SBI), whose CEO Rajnish Kumar is also the Chairman of IBA, is not in favour of granting moratorium to NBFCs, but instead supporting them with via the Targeted Long Term Repo Operation (TLTRO) announced by RBI, said people who were present in the meeting.
“SBI opined in the meeting that instead of giving moratorium relief, banks could support NBFCs through the TLTRO investments, which could in turn be used to pay their installments,” one of the people present in the meeting said, who disagreed with the point of view, saying that it was not prudent for banks to take on more exposure to weaker NBFCs through TLTRO.
A handful of other banks like Indian Bank and Bank of Baroda were of the view that banks must support NBFCs with the moratorium benefit to get over the economic disruptions due to the COVID-19 pandemic, while some thought it best for banks to take a call on a case to case basis. ​
“We cannot have some banks granting moratorium to an NBFC, and other banks in the consortium not granting relief, that will not work out. So we need to have a consensus in the action we will take as an industry,” explained one of the heads of a bank present in the meet today.
Therefore, it was decided that a case study of 20-25 NBFCs would be conducted by the banks to study their financial health, impact due to COVID-19, capital requirement and repayment capability, and on the basis of this study, a case would be presented to the Reserve Bank of India (RBI) to seek directions on the matter, said another executive who was also part of the IBA meeting.
“Our sense is that RBI is not in favour of the moratorium to NBFCs at the moment, and that’s why banks like SBI have taken the stance of not extending the benefit to them,” another bank head told CNBC-TV18.
He added that once banks study the current scenario when it comes to NBFCs, they will then be in a position to make their case to RBI to allow the moratorium relief.
However, as far as the micro finance industry was concerned, the person quoted above said, the general view was that banks would have to support them via the moratorium.
Finance Industry Development Council or FIDC, a self-regulated body representing the NBFCs in India, had penned a letter to Sunil Mehta, the chief executive officer of the IBA, ahead of the April 18 meeting, and sought that banks allow moratorium on payment of interest and principal due from those NBFC/HFCs between March and May, 2020.
CNBC-TV18 had reported on April 16 that SBI was in favour of supporting NBFCs via small loans of up to Rs 200 crore, rather than providing them the benefit of moratorium.
The RBI on Friday announced Rs 50,000 crore liquidity lifeline for NBFCs via a second round of TLTRO or Targeted Long Term Repo Operation, with half of the total fund ear-marked for small and mid-sized NBFCs and MFIs.
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