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FICCI has suggested announcement of a special liquidity line for non-banking financial companies (NBFC) from banks among other measures to support the NBFCs amid the coronavirus crisis.
As per the industry body, cash inflows of the NBFC will suffer due to moratorium of three months and the impact of a higher incidence of credit costs, cash outflows may not commensurately reduce as NBFCs have increasingly moved towards financing flows from the capital markets where the moratorium does not apply.
In a note, it has also suggested allocation of a significant amount from the targeted long term repo operation (TLTRO) to the NBFCs.
"We would accordingly request a special liquidity line to NBFCs from banks as well as a significant allocation from the TLTRO operations mandatorily flowing to the NBFCs," it said.
This could be in two forms as per FICCI, with additional 10 per cent loan by banks under a special COVID-19 program and an amount of 10 per cent of total borrowings as refinance against existing listed NCDs held by the NBFCs and HFCs also.
It also requested the RBI to support NBFCs by temporarily amending the definition of non-performing assets (NPA).
Following the announcement made by the RBI on the need to provide moratorium of term loans, NBFCs will be able to offer this relaxation to their borrowers only to the extent they are supported by their liability side, the FICCI note said.
It added that the liabilities profile of an NBFC is about 40-50 per cent from the banking system and the other 50-60 per cent is from other segments like capital markets, retail public lenders and so on.
These other than banking segments of lenders are not allowed to provide moratorium under the RBI relaxation considering the mode of lending and hence this would in turn limit the ability of NBFCs to offer moratorium, which may give birth to large NPAs on the NBFC books, since largely all sectors are affected by Covid-19 either directly or indirectly.
"To address this issue, the RBI is requested to support the NBFC sector by temporarily amending the NPA definition, such that NPAs would be reckoned if past due for 180 days (instead of 90 days past due as is currently the provision)."
This takes into account the three-month moratorium window that has in any case been considered by the RBI. The Special Mention Account definitions may also be accordingly revised wherein the SMA1 definition be changed from 1-30 days to 1-90 days and SMA2 definition be changed from 31-90 days to 91-180 days to address this situation.
A similar kind of relaxation was also granted by the regulator in the year 2008, it said, adding that this temporary additional days' extension in NPA calculation would ease out the NPAs for NBFCs.
Among other measures, it has suggested that there should be a standstill on recognition of past overdue by borrowers till June end.
It said that NBFCs and HFCs are also not able to contact customers to collect their dues. Borrowers will see a long-term impact and they will not be able to pay EMIs for next few months.
They will also not be able to clear overdues as on February-end. Hence, we request that this moratorium should also be applicable to all delinquent and overdue loans as on February 29, 2020. There should therefore be a standstill on their recognition of past overdue till June end, FICCI recommended.