BackRBI's decision to extend loan moratorium credit negative for NBFCs: Moody's
The government and RBI have announced a series of measures to help improve liquidity condition of NBFCs, these measures have been mostly ineffective
PremiumMUMBAI: The Reserve Bank of India's decision to extend loan moratorium by another three months is credit negative for non-banking finance companies, according to rating agency Moody's Investor Services.
In a report released on Monday, the agency said the first round of moratorium effective 1 March, has led to a significant decline in cash inflows and hit liquidity of NBFCs. The extension of the moratorium will add additional stress to cash inflows, it added.
While the government and the Reserve Bank of India (RBI) have announced a series of measures to help improve liquidity condition of NBFCs, these measures have been mostly ineffective. On 14 May, the government said it will guarantee up to ₹30,000 crore of NBFC debt. However, implementation guidelines revealed that only debt maturing within three months is eligible.
On 27 March, RBI made available cheap liquidity worth ₹1 lakh crore under the Targeted Long Term Repo Operations (TLTRO) window. While banks used these funds to invest in the high rated corporate bonds papers of NBFCs and other companies, many lower rated NBFCs were left strapped for cash. This resulted in RBI making available ₹50,000 crore worth liquidity under TLTRO 2.0 window, which also saw very low participation by banks.
Separately, banks have also been selective in giving moratorium to all NBFCs, which is adding to their liquidity stress.
Moody's added that the impact of the extension of the moratorium will be different for public and private sector banks. "Public sector banks in general have been much more open to offering moratoriums than private sector banks. As lockdowns are progressively removed, private sector banks will be much more proactive in their collection efforts, magnifying the difference stand of public sector and private sector banks. As a result, public sector banks may end up holding more residual credit risk, which will expose them to more asset quality risks," it said.
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