FIDC seeks relaxation in provisioning conditions for restructured accounts

The Finance Industry Development Council (FIDC), in a letter to the finance minister, has asked for a relaxation in additional provisioning requirements for restructured accounts in case of NBFCs as they follow the IND AS norms on provisioning for credit losses and these provisions are much stricter than Reserve Bank of India (RBI) norms.

RBI guidelines on provisioning for restructured accounts require additional provisioning of 10 per cent, while the IND AS norms require provisioning to be done for credit losses on historical average and own experience of respective lenders. “We therefore suggest that the additional provisioning requirement may be dropped for restructured accounts for NBFCs”, the FIDC said in the letter to the finance minister.

The FIDC has also asked the ministry to allow debt restructuring of all standard MSME accounts in the 0-90 day bucket, given the sector is facing liquidity issues at present. Currently, guidelines on one time restructuring require that the customer account to be in 0- 30 bucket as on the date, but excludes standard accounts in 31-90 bucket.

The council also raised the issue of including loans given for passenger vehicles to self-employed customers and tractors to small and marginal farmers within the ambit of the emergency credit line guarantee scheme (ECLGS). Under the current scheme, the customer has to pay interest for one year and the loan is repaid in the next 3 years. However, NBFCs believs that since their existing loan size is very small, at times the customer might want a shorter period for repayment. FIDC has sought flexibility in fixing the tenure, but not exceeding 1+3 years, based on the customer’s desire and cash flows.

The industry body has also sought permission to lend more than 20 per cent of the current outstanding to the customer, but since the ECLGS benefit is limited to 20 per cent, the body has said, NBFCs can take further exposure on their own risk on the same security cover.

FIDC has also sought an increase in the tenure of guarantee under Partial Credit Guarantee Scheme (PCGS) to 36 months so as to encourage the banks to lend for 36 months as it will otherwise result in an ALM mismatch for the NBFCs. As a number of smaller NBFCs are not equipped with issuing bonds, FIDC has asked the government to extend the Partial Credit Guarantee Scheme (PCGS) for term loan facilities granted to the NBFCs, limited to end use of funds for lending to micro and small enterprises.

In a meeting with banks and NBFCs, Finance Minister Nirmala Sitharaman asked them to put in place by September, 15 loan restructuring schemes to rescue all viable business units affected by the Covid-19 pandemic. The meeting was held to review their state of preparedness for implementation of the loans resolution framework for Covid-19 related stress.