Sidbi to provide liquidity support to NBFCs, MFIs with 90-day term loans

NBFCs and MFIs have been hit on two fronts, with collections dipping due to the covid-19 lockdown, and the three-month moratorium extended to their borrowers

The Small Industries Development Bank of India (SIDBI) has designed schemes to provide liquidity support to the MSME sector by extending term loansto non-banking financial companies (NBFCs) and microfinance lenders (MFIs) and banks . The move follows the Reserve Bank of India (RBI)'s provision of a special refinance facility of Rs 50,000 crore to all India financial institutions, such as National Bank for Agriculture and Rural Development (Nabard), SIDBI and National Housing Bank (NHB). The tenor of these loans will be 90 days but an extension can be given on a case to case basis.

Of the Rs 50,000 crore provided by RBI, SIDBI has been allotted Rs 15,000 crore. Through its special schemes launched to support the MSME sector, Sidbi will provide term loans to shadow banks, microfinance institutions (MFIs) and small finance banks for on-lending to MSME sector.

SIDBI officials said though window is open for one year, it will have to return money in 90 days. It can draw fresh money from refinance window. This SIDBI will repay from its resource pool. On using this money for giving funds, officials said SIDBI is not looking to make profits but will like to cover default risks.

The lending rates charged to borrower (MFIs, NBFCs and Banks) will reflect this costs. The spread over repo rate may be up to 300 basis points. This rates are expected to be much less than what are charged in normal lending operations.

But the NBFC and MFI industry is not so jubilant about the scheme put out by SIDBI to help them tide over liquidity constraints and on-lend to the MSME sector. The bone of contention is the 90 day term loan period. Experts say, the loan should have been for a longer tenor given the prevailing circumstances.

NBFCs and MFIs have been hit on two fronts, as their collections have dipped due the covid-19 crisis and subsequent lockdown, and also because they have extended a moratorium of three months to their borrowers so as to provide them with some relief during the on-going crisis. But, banks have still not reached a consensus on extending the moratorium facility to the NBFCs and MFIs.

In such a scenario, no NBFC will opt for this facility unless there are in dire need of funds. They should extend the tenor to 3 years, said Raman Agarwal, Co-chairman, FIDC.

Harsh Shrivastava, CEO, MFIN said, “There is a lot of uncertainty among members on where will they be in June and July. There is no collection upto May 31 because of the moratorium. And, with so much uncertainty around, MFIs will be hesitant to take up new debt knowing that they have to pay it in three months with no clarity on collections. So three months is too less”.

“We would have liked a longer tenure loan as 90 days is not enough”, said Aiswarya Ravi, CFO, Kinara Capital.

NBFCs who want to avail credit from Sidbi to ensure operational continuity and for on-lending to MSME sector have to have an external rating of BBB- or superior as of March 31, a minimum net owned funds of Rs 20 crore, and a minimum asset size of Rs 50 crore. Its promoter should not be in the RBI’s blacklist or defaulter’s list and the capital adequacy ratio has to be above the regulator’s requirements in the last 24 months. Similarly, MFIs with BBB- rating or superior to that and a minimum MFI grading of Mfr5 can avail loans from Sidbi under the special scheme.

For scheduled commercial banks to avail the facility, they should be in operation for three years with profits in at least two out of last three years, have a minimum net worth of Rs 100 crore, capital to risk weighted assets ratio (CRAR) of not less than 9 per cent and should have net NPA level within 10 per cent to seek loans under the scheme. In cae of small finance banks, they should have been profitable for at least two out of the last three years, must have a net worth of at least Rs 100 crore, CRAR of 15 per cent or above and gross NPAs should not exceed 7 per cent.