IBA to discuss moratorium relief for NBFCs at meeting today

Finance Industry Development Council or FIDC, a self-regulated body representing the NBFCs in India, wrote to Sunil Mehta, Chief Executive of the IBA, ahead of the April 18 meeting.

In the letter reviewed by CNBC-TV18, FIDC has sought that banks allow moratorium on payment of interest and principal due from those NBFC/housing finance companies between March and May, 2020, and also actively provide liquidity support under Targeted Long Term Repo Operations (TLTRO) and various schemes like term loans for on-lending to priority sectors, as has been permitted by the RBI.

CNBC-TV18 had reported on April 16 that State Bank of India, the country’s largest lender, favoured supporting NBFCs through small loans of upto Rs 200 crores, rather than providing them the benefit of moratorium.

“You either trust NBFCs, or you don’t. Why give loans if you don’t trust them with moratorium, or why bother investing in their instruments when you’d rather not take any exposure to the weaker NBFCs?” the head of a large bank told CNBC-TV18.

He added that the banks need to collectively decide if they will or will not provide support to the smaller NBFCs, before they decide on the kind of support to offer via TLTRO, loans or moratorium relief.

The Reserve Bank yesterday announced a Rs 50,000 crore liquidity lifeline for NBFCs through a second round of TLTRO, with half of the total fund reserved for small and mid-sized NBFCs and microfinance institutions.

Another banking executive remarked that it was not the lack of liquidity that was stopping banks from lending to NBFCs, but their risk aversion due to the large pile up of bad loans.

Also read: What exactly is TLTRO and how is RBI helping NBFCs through it