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SBI's decision on extending moratorium is being closely watched by stakeholders as it could have a bearing on the industry. (Photo: Mint)
SBI's decision on extending moratorium is being closely watched by stakeholders as it could have a bearing on the industry. (Photo: Mint)

SBI looking to extend moratorium to NBFCs and microlenders

  • If SBI —India’s largest bank—changes its stance, it may prompt most other commercial banks to follow suit
  • RBI allowed banks access to 3-year funding worth 50,000 crore for investing in investment grade papers of NBFCs, MFIs

State Bank of India (SBI) is planning to offer a three-month loan moratorium to non-banking financial companies (NBFCs) and microlenders, two officials at the bank said. The SBI board may discuss the matter at its meeting on Wednesday.

On 27 March, the Reserve Bank of India (RBI) permitted lenders to give a three-month moratorium for all borrowers, but SBI decided not to provide the relief to NBFCs. If India’s largest bank changes its stance, it may prompt most other commercial banks to follow suit.

The rethink follows complaints from the NBFC sector that was shut out of the moratorium offered to all other borrowers from 1 March to 31 May. The Supreme Court directive to the RBI to ensure implementation of its 27 March circular in its “letter and spirit" is also adding to the pressure on banks, the first of the two bankers said on condition of anonymity.

“As of now, there is a possibility of moratorium being extended to NBFCs and MFIs. The decision has to be approved by the board. There is tremendous pressure to extend the moratorium," the first banker said.

An email to an SBI spokesperson remained unanswered.

At a recent meeting with bankers over video conferencing, RBI officials said banks have the discretion over offering loan moratorium.

“SBI chairman had hinted at the meeting with RBI governor that they would look at giving moratorium on a case-to-case basis. This will mean all PSU banks will come on the same page. Other banks were not giving moratorium because we were worried that these companies will use our money to pay off dues to SBI. That would have been a problem," the head of a public sector bank said on condition of anonymity.

If SBI offers the moratorium, then it may reduce the amount of lending under the second edition of target lending term repo operations, or TLTRO 2.0, the first banker said. RBI had allowed banks to access three-year funding worth 50,000 crore to be invested in investment-grade papers of NBFCs and MFIs. However, TLTRO 2.0 auctions conducted on 23 April attracted tepid response due to banks’ reluctance to invest in these companies.

Separately, SBI has also made available a special long-term working capital loan facility to its 25 NBFC borrowers with A and BBB ratings.

The decision by the country’s largest bank on this issue is being closely watched by all stakeholders as it could have a bearing on the entire industry.

An executive director at a public sector lender said his bank has decided to offer loan moratorium for NBFCs on a case-to-case basis through an opt-in mechanism.

“I feel since liquidity is the issue for NBFCs, they are better off with our investments through funds raised in the TLTRO window. While the moratorium is only for three months, these longer-term funds will help them tide over the crisis," said the banker. He said his bank has borrowed over 5,000 crore in the two TLTRO auctions and will soon invest it in debt securities as per RBI guidelines.

For retail and small business and corporate borrowers, banks have been more open to providing a three-month deferment. Unable to secure a similar moratorium, NBFCs are in a precarious position as they have already provided a repayment deferment to borrowers, and could soon face asset-liability mismatches.

On 27 March, the Reserve Bank permitted lenders to give a three-month moratorium, but left it to individual banks to decide on the implementation.

Separately, the Indian Banks Association came out with an FAQ mandating that the moratorium be extended to term-loan repayment by all borrowers, including NBFCs.

This created confusion whether the moratorium is applicable to all borrowers or whether the bank can use its discretion. had SBI decided not to allow deferment of loan repayment to NBFCs, putting other banks in a fix.

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