Extension of moratorium on loan repayment to affect liquidity: Icra

The extension of the moratorium on loan repayments till August by the Reserve Bank of India will impact non-banking financial companies' (NBFCs) collections and affect their liquidity conditions, says a report.

In March, RBI had announced a three-month moratorium on loan repayments due between March 2020 and May 2020. Last month, the central bank further extended the moratorium by three months.

Most NBFCs carried adequate on-balance sheet liquidity as of March 2020, which, along with access to funding lines, would be sufficient to meet their three-month requirements, according to the report by rating agency Icra.

However, the extension of moratorium till August 2020 could adversely impact their collections than the previously anticipated levels, its vice president and sector head (financial sector ratings) A M Karthik said in the report.

About 30-75 per cent NBFCs' asset under management (AUM) is under repayment moratorium though not all lenders have extended a moratorium to NBFCs.

Also, the moratorium is not applicable for market instruments, which account for about 35-40 per cent of the outstanding borrowings, the report said.

While fresh sanctions from lenders including financial institutions (SIDBI, NABARD, NHB) are in various stages of approval, the liquidity profile of NBFCs, especially lower-rated and small entities, could witness headwinds in the event of any delays in securing fresh funding and as RBI permits them to offer a further three-month moratorium period to their borrowers, the rating agency said.

It said NBFCs are estimated to have close to Rs 6-6.5 lakh crore of long-term debt maturities in the current fiscal. Non-convertible debenture (NCD) maturities of non-banks are estimated at about Rs 2.6 lakh crore while bank loan maturities are estimated to be about 3 lakh crore in 2020-21.

This apart, commercial paper (CP) maturities over the period May 2020 -March 2021 is about Rs 1.2 lakh crore.

Of the total NCD maturities of NBFCs in FY21, lower rating categories (A+ and lower, excluding entities in default) is only about 11-12 per cent. Targeted funding to these entities would help them weather near-term headwinds, Karthik said.

Icra further said the extension of the moratorium would also negatively impact loan sell-down volumes, which emerged as the key funding avenue for NBFCs since the third quarter of 2018-19, with banks being the largest investor segment in this category.

Loan sell-down volumes, which remained healthy at about Rs 1.9-2.0 lakh crore over the last two fiscals, would be significantly impacted in the current fiscal, further exacerbated by asset quality concerns amidst rising uncertainties caused by the contracting economic activity, the report said.