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RBI breaks silence; banks fall in line on extension of loan moratorium for NBFCs

Date: 07-05-2020
Subject: RBI breaks silence; banks fall in line on extension of loan moratorium for NBFCs
The tug-of-war between non-banking finance companies (NBFCs) and commercial banks on the issue of extending three-month loan moratorium for bank loans is finally coming to an end.

After a meeting with the Reserve Bank of India's top brass and representatives of banks and NBFCs, most banks have agreed to extend moratorium to their NBFC clients on a case-by-case basis.

In some cases, banks have even begun returning the loan installments debited earlier from borrower accounts as part of the moratorium for all loan dues falling between March 1 and May 31, said industry officials.

"Most banks have started reaching out to us. In some cases, we have received reports that banks are returning the EMIs deducted since March. So once can say that the problem is resolved," said an official of NBFC industry .

In a meeting with bank chiefs, the RBI Governor Shakikanta Das and his deputies had made it clear to banks that the central bank has no issues with banks extending moratorium to NBFCs. The RBI repeated the same view in its meeting with NBFC industry representatives on may 4. Following this, banks have started communicating with their NBFC clients on moratorium details.

On March 27, RBI had announced the moratorium facility for all term loans as part of the COVID-19 package. Under this, all term-loan EMIs falling between March 1 and May 31 should be deferred by banks while the interest component will continue to accrue on the outstanding loan amount. This was done to provide relief to borrowers during the nationwide lock-down.

While banks and NBFCs immediately started offering this to their retail customers, banks were initially undecided on whether the same needs to be extended to financial intermediaries. This confusion happened after an FAQ from the Indian Banks Association (IBA) said NBFCs are not eligible for the moratorium. Banks took this cue and didn’t extend the EMI deferral facility to their NBFC clients.

Banks also contested that the RBI circular isn't clear about financial intermediaries. In fact, the RBI circular on moratorium hadn’t said anything specific about NBFC loans. The RBI governor, during his press conferences too didn’t say anything about NBFCs. This lack of clarity gave room for banks to interpret the circular. On the other hand, the RBI felt that banks are being selective about the moratorium issue.

Moneycontrol had reported earlier about RBI's displeasure on banks’ approach on the moratorium issue.

"Banks want to have their cake and eat it too. Selective/cherry-picking instructions. How come banks have clarity on what they want to do but look for excuses for things they don’t want to do? (sic)," a senior RBI official had said on condition of anonymity. "We have not prohibited (banks from extending moratorium to NBFCs). So for every decision of theirs (banks), why should RBI need to clarify?" the official asked.

According to the data from the RBI, outstanding loans to the entire NBFC sector from banks stand at Rs 7 lakh crore. On a year-on-year basis, this exposure has grown by 22 percent. That is a significant exposure. NBFCs feared this disparity in treatment on moratorium will create short-term liquidity issues for them since they are extending moratorium to their borrowers.

With Das speaking to banks specifically on the NBFC issue, banks are now left with no option but to extend the moratorium to NBFCs and NBFC-MFIs. This comes as a relief for NBFCs, especially smaller NBFCs, which are struggling with funding issues.

Source:- moneycontrol.com

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