Home >Industry >Banking >No relief for NBFCs under debt recast plan

The Reserve Bank of India’s plan to allow a one-time loan restructuring will bring relief to many stressed borrowers. However, the riders put in place by the central bank are bound to create headwinds for stressed non-banking financial companies (NBFCs), as they have been left out of the list of eligible entities.

Industry experts believe that this could turn credit negative for NBFCs, which are already struggling to meet liquidity requirements. NBFCs had been dealing with pain since 2018 when defaults at Infrastructure Leasing and Financial Services sent shockwaves across the financial services sector, while covid-19 accentuated the stress.

“If restructuring is not allowed for an NBFC, it becomes a provisioning issue, while it leaves the borrower with a damaged credit score. Covid is an unprecedented situation. We need to protect businesses credit history and not let them be handicapped," said Rashesh Shah, chairman and CEO, Edelweiss Group.

Restructuring will help non-bank lenders, banks and borrowers clear their long-term plans, enabling repayment of dues when the economy revives, he said.

“The expert committee, set up by the RBI under veteran banker K.V. Kamath, will soon come out with guidelines on this, taking into consideration industries that have been impacted, and we are hopeful that it will ensure NBFCs are not at a disadvantage," he said.

The NBFC sector has been under financial stress, said Veena Sivaramakrishnan, partner, banking, Shardul Amarchand Mangaldas and Co. For NBFCs as borrowers, the new RBI framework excludes financial service providers. “So, NBFCs will need to look at other avenues of asset monetization and relief," she said.

However, the sector seems to be divided over the eligibility of NBFCs under the scheme. Some well-rated NBFCs believe that restructuring is not required as liquidity has improved significantly.

“The ones that need liquidity can resort to other measures announced by the government and central bank," said a top official at an NBFC, requesting anonymity.

Since March, the government and the central bank have announced several measures, including the Targeted Long-Term Repo Rate Operations 2.0 (TLTRO) of 50,000 crore to improve access to liquidity for NBFCs and microfinance institutions. RBI governor Shaktikanta Das on 6 August announced an additional special liquidity facility of 5,000 crore for the National Housing Bank to ease the stress of housing finance companies.

“We are not looking for restructuring from the bank side as cash flows have increased. We wanted loan restructuring for borrowers and that has been addressed," said Umesh Revankar, MD and CEO, Shriram Transport Finance. “The government and RBI have come out with credit guarantee schemes and smaller NBFCs can look at that."

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