As state after state imposes restrictions on economic activity, shops, retailers, MSMEs, restaurants are all staring at another quarter of fixed costs and no revenues. The Reserve Bank of India (RBI) Governor has been meeting teams from the financial sector to gauge the situation.
CNBC-TV18 broke the story that banks want the restructuring of cases that started in September 2020 to be continued until the end of this year. What will this mean in terms of how rating agencies will look at such cases? Will this in any way impact the confidence of investors as they begin to distrust P&Ls of companies.
Speaking to CNBC-TV18, IBA Chief Sunil Mehta said that no one had anticipated the extent of damage due to the second wave of COVID and hence have asked RBI to extend the restructuring window for working capital.
“Liberalised working capital assessment which was permitted last year during the first wave and which was to end on March 31, we have requested that this may be extended for one more year which enables the bankers to reassess their working capital, reduce their margins, without treating it as restructuring or downgrade,” he said.
According to Krishnan Sitaraman, Senior Director at Crisil Ratings, the rating agencies will not take knee-jerk actions. “What we would be looking at is not take any knee-jerk action. What we are looking at, both from a near term perspective as well as from a longer-term perspective is what is the fundamental and intrinsic strength of the companies. If it is a near term impact and if things can get addressed in the next few months due to this restructuring been given, we would take a call accordingly,” he said.
Umesh Revankar, MD of Shriram Transport Finance Company said that NBFCs lend against earning assets, which if not working, could lead to delay in payments.
“The NBFCs lend against earning asset and if the asset is not earnings, then there is a delay in repayment. Since we are lending against an asset, we don’t have a big challenge of losing an account or getting into NPA immediately. There will be a temporary delay in the payment or a smaller EMI may be paid. So restructuring gives us an opportunity to have a dialogue with the customer and reschedule his repayment in such a way that it is not considered as an NPA,” he said.
Alok Misra, CEO & Director of Microfinance Institutions Network said that we need to ensure that liquidity aid goes to smaller players. “On liquidity, we have requested two specific things. One is that the tenure of the liquidity which flows in from RBIs funding to AFIs, basically NABARD and CIDBI, has to be long term and that is also to be structured in such a way that the advantage also flows into the smaller player because last time a major chunk of it went to the big players and smaller players were left high and dry,” he said.For the full discussion, watch the video.