Extension of moratorium on loan repayments credit negative to NBFIs: Moody’s

By: |
June 1, 2020 10:31 PM

The moratorium on customer loan repayments, initially effective from 1 March, has led to a significant decline in cash inflows and adversely impacted the liquidity of NBFIs.

Extension of moratorium, loan repayments, moodys, NBFI, Reserve Bank of India, NBFI debt, Public sector banksThe moratorium on customer loan repayments, initially effective from 1 March, has led to a significant decline in cash inflows and adversely impacted the liquidity of NBFIs.

The Reserve Banks decision to extendmoratorium on loan repayments until 1 September, 2020 is credit negative for the liquidity profile of non-bank financial institutions (NBFI) which normally manage their liquidity primarily by matching outflows with inflows, Moody’s said in a report on Monday.

“The extension of this moratorium period is credit negative for the liquidity profile of non-bank financial institutions (NBFI). NBFIs manage their liquidity primarily by matching outflows mainly debt repayments with inflows from customer loan repayments.

The moratorium on customer loan repayments, initially effective from 1 March, has led to a significant decline in cash inflows and adversely impacted the liquidity of NBFIs.

The extension of the moratorium will add additional stress to cash inflows, which will continue for at least three more months, it said. On 22 May, the Reserve Bank of India allowed financial institutions to extend the moratorium on loan repayments to their customers until 1 September, 2020.

The Centre and the RBI have announced a series of measures to alleviate liquidity stress at the NBFIs. However, the measures have been mostly ineffective. In the most recent measure announced on 14 May, the government said it will guarantee up to Rs 30,000 crore of NBFI debt, according to Moody’s.

However, only debt maturing within three months is eligible, according to the implementation guidelines. Moodys expects the short tenure of the debt guarantee will have little effect in alleviating the liquidity stress being experienced by the NBFI sector.

Currently, the moratorium by banks to NBFIs on bank loan repayments is the only meaningful relief for NBFIs to withstand liquidity stress. Bank loans are an important source of funding for NBFIs and therefore, repayment holidays from bank loans will significantly help NBFIs manage liquidity, it said.

“However, it’s not clear whether all of the NBFIs will benefit from the bank moratorium as we expect banks to evaluate individual NBFIs on a case-by-case basis. Further, a moratorium on bank loan repayments does not address the structural access to funding issues of NBFIs,” the rating agency opined.

The impact of the extension of the moratorium will be different for public and private sector banks. Public sector banks in general have been much more open to offering moratoriums than private sector banks, Moody’s said.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Gold loans account for 35% of our loan book and can go up to 45%: CVR Rajendran, Managing Director & Chief Executive, CSB Bank
2Delhi HC restrains Canara Bank from flouting SC’s NPA relief order
3Jana Small Finance Bank plans 600 branches by March next year