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NBFCs seek one-off restructuring citing second wave

Non-bank finance companies (NBFCs) sought one-off recast of retail and individual loans given to small businesses, taxi drivers, shopkeepers citing the second wave of coronavirus. The Finance Industry Development Council (FIDC), an industry body representing last-mile lenders wrote to the RBI governor as rising caseloads triggered localised lockdowns with an economic cost.

The umbrella body also demanded an extension of different liquidity windows, a key lifeline to small or mid-size non-banking finance companies. Localised curbs on mobility weighted on the economy that was lately trying to clamber out of the sinkhole.

“The borrower accounts, irrespective of whether or not such accounts had been restructured on any earlier occasion and which are “standard” accounts as on March 31, 2021, may be allowed restructuring without any downgrade in asset classification,” the industry body said in a letter to Shaktikanta Das, the RBI governor.

India reported more than 3.23 lakh new Covid infections on Tuesday and 2771 deaths. Surge in infections have pushed states like Maharashtra, Karnataka, Uttar Pradesh and New Delhi to enforce strict lockdowns taking a toll on business momentum.

The second wave could well scuttle nascent recovery in consumer and corporate confidence clouding prospects of business normalcy.

“Given the current lockdown scenario, and its impact on the businesses, more so on the traders and retail customers, their ability to repay is likely to turn from bad to worse, which may cause deterioration in the asset quality of all the lenders, including NBFCs,” it said.

Initial figures suggest that portfolios at risk for non-banks could significantly push up non-performing loans and collection efficiencies have been down nearly 5-10% in April. Business momentum too has taken a hit with productivity levels down by 20% so far, analysts say.

“In this challenging environment for borrowers and lenders, in general, it will be helpful, if the RBI extends the said notification till at least March 31, 2022,” FIDC said.

The central bank last year in August allowed onetime restructuring of existing MSME (Micro, Small and Medium Enterprises) advances, classified as “standard” without downgrade. The time limit for implementation of the said restructuring plan was until March 31 this year.

FIDC also made a case for small non-bank entities requesting RBI “to consider advising banks and FIs to allow one time restructuring of loans given by them to small NBFCs only.” NBFCS with asset size of less than Rs 500 crore are defined as small NBFCs.

Last year, the RBI announced various liquidity windows including targeted long term repo operation or TLTRO and others. Such measures helped NBFCs navigate a crisis.

FIDC urged the RBI to increase the overall support outlay to AIFIs from Rs. 50,000 crore to at least Rs 75,000 crore.

While the existing allocation for other sectors may continue at their prescribed limits, the additional Rs. 25,000 crores may be made available exclusively to medium and small NBFCs, through SIDBI for a period of 3 years,” it said.

Micro-finance and unsecured SME loan pools had reported the highest delinquencies last year post the end of the moratorium period, followed by vehicle loan pools.

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