India’s shadow banks have reached out to the government seeking an extension of the Reserve Bank of India permitted moratorium to all sources of funding availed by non-banking financial companies (NBFCs), including bank loans.The Finance Industry Development Council (FIDC), the umbrella body for non-bank finance companies, has today written a letter to the finance ministry, saying the deferment given to their customers on their term and working capital loans will necessarily have an impact on their ability to service their lenders, including banks, mutual funds (MFs) and insurance companies.
Therefore, FIDC has said that for the moratorium to be fully effective without impacting the asset-liability matching would need to be applied on all sources of funding availed of by NBFCs and relevant instructions may need to be issued by other sector regulators – viz., SEBI and IRDA.
Here is what the NBFC body has proposed:
- Make the moratorium/deferment and elongation of the repayment schedule as also the residual tenure mandatory for all term loans outstanding as on March 1, 2020, and also for the loans disbursed thereafter. (Since almost all sectors of the economy are affected by the situation with a negligible number of exceptions). Most of NBFCs lending is to the retail and MSME sectors which are particularly vulnerable in this situation. This will avoid any fear or favour in extending such a facility in the minds of the decision-makers and will be uniformly applicable.
- Allow NBFCs to extend the tenure of the loans given to such borrowers for a few months beyond the three months solely to permit borrowers to pay the deferred interest through easier installments instead of a lump sum at the end, which may be highly burdensome for them.
- Banks must offer moratorium/deferment of interest (as the case may be) for all loans extended by them to NBFCs to the full extent.
- The same facility should be extended to cover all money market instruments such as commercial paper and non-convertible debentures/bonds.
- NBFCs are required to offer moratorium of EMIs of loans, whether they are on their books or sold through the process of securitisation or assignment of receivables. If the investor banks which hold the pass-through certificates do not provide automatic approval in this regard, it will cause a hardship for the customers of NBFCs. Notification may be issued in this regard.
- Similar facility should be offered by money market participants such as mutual funds, insurance companies and others who hold commercial paper/bonds issued by NBFCs. Instructions to operationalise this may be issued by the appropriate authority such as IRDA/SEBI etc.
- An advisory must be given to credit rating agencies by SEBI and RBI such that any deferment/moratorium given to an NBFC is not considered as a negative rating criterion.
- Procedures of issuance of NCDs need to be simplified in the current scenario, where the company is required to use their letterhead and digital signatures for confirmation of allotment of issuance, listing, filing of forms with ROC, etc.