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NBFCs risk not repaying Rs 1.75 lakh crore


MUMBAI: Debt worth Rs 1.75 lakh crore, maturing by June 2020, may be at risk of not being paid if the RBI does not move quickly to clarify that the moratorium package available to banks should be extended to non-banking finance companies (NBFCs) also. Two credit rating agencies — Crisil and Acuite — have raised red flags. They point out that for NBFCs, which now mostly depend on bank funding with other channels nearly non-operational, may find the going extremely tough if the moratorium benefits are not extended to these lenders as well.

Currently, mutual funds are not buying NBFC papers as they are facing redemption pressure. Additionally, the RBI’s special window for targeted long-term repo operations (TLTROs) are crowded with government and corporates also joining in to get money. This, in effect, is crowding out the lower rated NBFCs from availing of the facility. In such a situation, NBFCs have to give moratorium to their borrowers without having a similar recourse from banks or availability of alternate easy funding routes, industry players said.

The report by Crisil pointed out that according to its estimates, if no moratorium on bank debt is extended, 11% of NBFCs don’t even have one-time liquidity cover for total debt repayments up to May 31, 2020. A liquidity cover of less than one time indicates inability to make debt repayments according to schedule and in full without the benefit of collections, external support, or access to additional credit lines or funding. And if business disruptions continue to June 30, 2020, then about 25% of NBFCs will have a liquidity cover of less than 1, with debt obligations aggregating to Rs 1.75 lakh crore.

Another report, by Acuite, noted that the immediate implication for the retail NBFCs is the lack of clarity on their debt-servicing ability in the near term. “With collections coming to a standstill…the primary cash flows of the NBFCs have been completely disrupted. While we can presume that most banks will provide back-to-back moratorium, there is no indication that it will be applicable for the non-bank lenders or investors unless there are specific bilateral arrangements. This implies that the bond holders, CP investors and also the FD holders in all likelihood, will insist on maintaining the existing repayment schedule,” the report said.

In addition to extending back-to-back moratorium to NBFCs by banks, the RBI could also open a special LTRO facility where only those NBFCs could participate that have ratings of AA or lower. This would ensure that the ones which need money the most could also get it, industry players said.


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