NBFCs seek fresh debt recast as Covid-19 second wave wreaks havoc

Those who had availed themselves of the recast earlier should get a second chance, the Finance Industry Development Council said in a letter to the RBI

Amid the resurgence of Covid-19 and with states imposing lockdowns, non-banking financial companies (NBFCs) are seeking a revival of the debt restructuring scheme. Those who had availed themselves of the recast earlier should get a second chance, the Finance Industry Development Council (FIDC) said in a letter to the Reserve Bank of India (RBI).
 
In the letter, addressed to RBI Governor Shaktikanta Das, the industry lobby group said, “Considering the severe second wave of Covid-19, the retail borrowers, including the [micro, small and medium enterprises], as also the retail and wholesale trader industry shall be in urgent need of support from the lenders, to revive their economic activities.”

 
It added that in this “challenging environment for borrowers and lenders”, it would be helpful, if RBI extends the August 6 notification on one-time restructuring till at least March 31, 2022.
 

The FIDC has said, borrower accounts, irrespective of whether they have been restructured on an earlier occasion, and if they are standard as of March 31, 2021, should be allowed restructuring without any downgrade in asset classification. Also, RBI may prescribe broad guidelines for restructuring such accounts on the lines of the recommendations made by the Kamath Committee.
 
They have also sought restructuring benefit for small NBFCs with asset size lower than Rs 500 crore, who are dependent on banks for their funding. Else, this may create an asset-liability mismatch for such NBFCs, FIDC said.

 
Small NBFCs constitute 75-80 per cent of active players and have 10-15 per cent share in total assets. Unlike large NBFCs, they do not access bonds and external commercial borrowings for resources, said FIDC Director Raman Aggarwal.
 
Furthermore, they have sought liquidity support for the sector for on-lending to MSMEs. In this regard, they have asked the central bank to increase its outlay for all India financial institutions (AIFIs) from Rs 50,000 crore to Rs 75,000 crore.
 
“While the existing allocation for other sectors may continue at their prescribed limits, the additional Rs 25,000 crore may be made available exclusively to medium and small NBFCs, through SIDBI for period of 3 years,” the industry body said.

 
Earlier this month, RBI announced that fresh support of Rs 50,000 crore will be provided to AIFIs for new lending in 2021-22.