BackNBFCs are a divided house over the need for a loan moratorium
Smaller NBFCs bat for a three-month moratorium, while larger peers say loan restructuring is a better option
PremiumSmall and medium-sized non-bank lenders are pressing for a loan moratorium for their customers as the covid pandemic spreads financial misery, even as their larger rivals and the industry lobby believe that borrowers should opt for loan restructuring instead.
A three-month moratorium, apart from the loan restructuring permitted by the central bank last month, will give much relief for small traders, said executives at smaller non-banking financial companies (NBFCs).
“Restructuring is not good for everyone; it’s a difficult process," said Aseem Dhru, MD and CEO of Mumbai-based SBFC Finance Pvt. Ltd.
“We have to go to each borrower and identify if the business is affected by covid. We have to establish documentary evidence for restructuring. All of this is not possible over a short period of time. I don’t want my employees stepping out. Also, restructuring puts a marker on the borrowers’ credit reports, making it difficult for him/her to take incremental loans from banks," Dhru said, making a case for a loan moratorium.
Many non-bank lenders have been forced to stop door-to-door collections after several collection agents and staff fell ill, bringing down collection efficiencies by 5-10%.
In April, the Reserve Bank of India (RBI) allowed banks and non-banks to restructure loans given to individuals and small businesses hit hard by the second pandemic wave. Under the new guidelines, banks can restructure loan exposures up to ₹25 crore, which have been standard as on 31 March 2021.
Restructuring under the new framework may be invoked up to 30 September and implemented within 90 days after invocation.
“This time, micro-enterprises are also included under restructuring. There are nearly 4 crore micro-enterprises and they have been hit hard. So, a moratorium will help these borrowers. Last year, we saw only 5% of customers who took moratorium availed of restructuring. Most of them could pay back regularly once the moratorium was over. This time around, without moratorium, lenders will be forced to restructure a larger number of accounts in order to prevent them from turning into non-performing assets," said Samir Bhatia, founder and CEO, SMEcorner, a new-age lending company.
Added Raman Agarwal, chair, NBFCs at think tank Council for International Economic Understanding: “On the restructuring front, these small NBFCs are not getting the benefit of getting their term loans (taken from banks and financial institutions) restructured back to back . We are, therefore, writing to RBI to provide liquidity support to small NBFCs (with asset size of up to ₹500 cr)."
"I don’t see any difficulty in restructuring, as not much of additional documentation is required. I don’t see this impacting the credibility or credit-worthiness of the borrowers, since it is a special dispensation being provided by the regulator under exceptional circumstances. In my view, people who insist on moratorium, are not fully aware about restructuring benefits," he said.
"We have not come across a single NBFC which has preferred moratorium over restructuring . Moreover, in case of moratorium, interest for the moratorium period (which is also called interest on interest) is an issue. Last time, the government stepped in and decided to foot the bill," he added.
Finance Industry Development Council (FIDC), an association of NBFCs, also believes that a moratorium is not needed now. It has sought a central bank liquidity window of ₹25,000 crore to support NBFCs with assets up to ₹500 crore.
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