Small and medium NBFCs anguished over RBI loan moratorium package

Small and medium NBFCs are anguished that banks may turn choosy and not grant to all of them the benefits of the RBI-approved loan moratorium package to tide over the current difficult situation arising from the coronavirus induced 21-day nationwide lockdown.

This is because the RBI has, while announcing the package, left it to the discretion of the banks and financial institutions to decide the cases that could benefit from such a loan moratorium dispensation, they said.

“RBI has used the word ‘permitted’ for all lending institutions to give it, thereby leaving it to the discretion of each lender. So, this is going to be discretionary on the part of the banks. Moratorium is not going to be mandatory or automatic,” Raman Aggarwal, Co-Chairman, Finance Industry Development Council (FIDC), told BusinessLine .

“The point of concern is that while NBFCs will have to give three months moratorium to almost all our borrowers, where is the assurance that they will also get commensurate moratorium from their lenders?” he wondered.

Post the IL&FS default in October 2018, banks have become risk-averse in lending to NBFCs. The small and medium NBFCs now are worried that this may play out even under the current situation in the absence of an RBI direction making it mandatory across-the-board.

Banking experts feel that the RBI move to leave it to the discretion of the banks to extend loan moratorium may be a fallout of the criticism that the central bank faced for its package given in the aftermath of the 2008 global financial crisis. It may be recalled that the benefits of the three-year loan moratorium extended then was across-the-board and non-discretionary.

The RBI was then criticised that such an approach meant that even financially-sound NBFCs gained from the moratorium ,and this was not warranted. So, this time to stave off such criticism, RBI has left it to the discretion of the banks to decide on the deserving customers, they said.

However, this discretionary approach is also not finding favour with NBFCs, as they feel that it would take a lot of time for them to get the benefits, even if the banks were to cover them under a Board-approved policy.

All banks are now required to frame a policy that has to be Board-approved and then this policy will have to be implemented at the branch level. “RBI has not left it non-discretionary. So, the package benefits reaching the ground level is going to be very tricky this time around. It’s a long process as banks may now put conditions. The policies of the banks need not be uniform. You can’t take for granted that you will get the relief. Banks are not loosening at the branch level,” a former chief executive of a public sector bank said.

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