NBFCs stare at defaults as banks refuse moratorium benefits

MUMBAI: Non-bank lenders may be staring at a default-like situation after banks declined to pass on the benefits of a three-month loan moratorium, announced by the Reserve Bank of India last week.
Non-banking finance companies (NBFCs), which are themselves borrowers from banks, allowed their customers to avail of the moratorium.

They have Rs 1.75 lakh crore of debt obligations maturing by June, according to rating agency Crisil.

Since their collections have dwindled and the moratorium is applicable only to their borrowers, raising fresh funds will be critical as non-banks lack the systemic sources needed for fundraising.

“It’s an existential crisis for NBFCs. The government and the RBI need to come forward and give very clear guidelines on liquidity support and offer one-time restructuring of all loans,” said Hemant Kanoria, Chairman of Srei Infrastructure Finance Ltd. “If moratorium is denied to us, it will break the chain as we have passed on benefits to our customers.”

NBFCs and banks have been sparring over whether the asset classification benefits announced by the RBI have to be passed on.

Banks are of the view that since NBFCs are also lending institutions, their collection system is operational to generate cash flows. They also say that quite a few NBFCs are adequately capitalised as they have access to liquidity from financial institutions such as banks.

“It is not as if all NBFC customers are availing moratorium, it would be in the range of 30-40%, their collection machinery is operational which will bring in liquidity,” said a senior banking official on the condition of anonymity. “…we are also willing to restructure their loans on a case-to-case basis if need be.”

Crisil’s analysis shows that if they are given the benefit of a moratorium, then at least three-fourths of the non-bank lenders will have a liquidity cover of more than three times to meet capital market debt obligations up to May 31. Only 3% will have less than one-time liquidity cover, it showed.

In a situation where no moratorium is granted on bank loans, only 37% of the Crisil-rated NBFCs will have a liquidity cover of more than three times for their total debt repayments up to May 31, while those with less than one-time cover would increase to 11%.

“Given the challenges in access to fresh funding, and presuming nil collections, our study shows a number of NBFCs will face liquidity challenges if they do not get a moratorium on servicing their own bank loans and are forced to meet all debt obligations on time,” said Krishnan Sitaraman, senior director of Crisil Ratings.