India’s largest lender State Bank of India will allow non-banking financial companies to avail the benefits of a three-month repayment moratorium permitted by the Reserve Bank of India, a senior bank official told BloombergQuint on condition of anonymity.
On March 27, RBI had allowed banks to offer the moratorium to term loan borrowers, among others. However, banks decided not to offer this relief to NBFCs, as specified in an Indian Banks Association circular issued soon after the moratorium was announced.
This left NBFCs in a spot. While they had to offer a moratorium to their customers, a similar relief was not provided to them, leading to potential asset-liability and cashflow mismatches at these lenders. SBI has now changed its position.
The bank will offer a moratorium to NBFCs on repayments due between March 1 and May 31, the official quoted above said.
Since much of the period for which is the moratorium is applicable has passed, the bank will not count any overdue payments from NBFCs as defaults. If the moratorium period is extended beyond three months, NBFCs will be able to avail the benefits. To avail the moratorium, the bank will seek financial details from NBFCs and take a decision on a case-to-case basis, the official said.
The decision to extend the moratorium to NBFCs has been approved by the SBI top management and the bank’s board is expected to give its approval soon, the person quoted above said. SBI had objected to offering the moratorium to NBFCs when it was first announced in March. At the time, the lenders had argued that since NBFCs had already completed the collections for March by the time the RBI announced the moratorium, they should be in a position to repay banks.
Moreover, since the banking regulator requires NBFCs to maintain a liquidity coverage ratio, they should have adequate cash flows to manage any asset liability mismatch, banks had argued.
However, NBFCs saw this as unfair and appealed for relief to RBI. In a recent meeting, RBI Governor Shaktikanta Das clarified to banks that the regulator was not opposed to NBFCs being offered a moratorium, BloombergQuint reported on Tuesday. This prompted a rethink among banks.
With SBI deciding to offer NBFCs a moratorium, other lender may also follow. To be sure, each individual lender would need to get board approval for this.
“We are glad that finally SBI has agreed to give NBFCs this benefit. It has been a long standing request. Now with SBI agreeing, we are expecting other banks also to follow suit,” said Raman Aggarwal, chairman of the Finance Industry Development Council, an industry association for NBFCs. “We will have to watch the criteria they follow before approving the moratorium, but it is certainly a positive step,” he said. As of March 31, banks had extended Rs 8.07 lakh crore worth loans to the NBFC industry, according to RBI data.
Source: BloombergQuint
