NBFCs seek one-time restructuring for standard accounts that may default in future

With the coronavirus outbreak bringing economic activity to a halt, non-banking financial companies (NBFCs) have sought a one-time restructuring for all existing standard accounts that can potentially default in future.

The companies have also asked for relaxation in provisioning requirement for such accounts.

NBFCs are at the forefront of financing many of the affected sectors such as small road transport operators, taxi aggregators, infrastructure contractors, MSMEs and traders.

In order to help borrowers who are facing challenges, the Finance Industry Development Council (FIDC), a representative body of assets and loan financing NBFCs, has written a letter to the finance ministry and the Reserve Bank of India, suggesting a slew of measures.

"Allow one-time restructuring of all regular accounts that are today not in default, but those that may become delinquent in the future without the extant requirement of 5 per cent provisioning in the NBFCs' books," FIDC Chairman Ramesh Iyer said in the letter.

The body has also requested to extend the period for recognition of non-performing assets (NPAs) for NBFCs from the current three months to six months past due, but only in cases that are non-delinquent as on March 1, 2020.

"Any provision made on loans that are already NPA should not be allowed to be written back to ensure maintenance of the sanctity of recognition of prior NPAs," Iyer said.

The slowdown in commerce has resulted in low capacity utilisation of trucks, machinery and other equipment of MSMEs and contractors, FIDC said.

Lock-up of commercial spaces such as malls, restaurants and restriction on the number of workers on site by several municipalities and local government is seriously affecting business cash flows, it said.

The current situation is likely to result in delayed payment of equated-monthly instalment (EMIs) even by customers with a hitherto excellent and unblemished repayment history, FIDC said.

This may adversely affect their credit scores for no fault of theirs, seriously impairing their ability to raise finance in the future for business, Iyer said.

"A moratorium should be announced on payment of EMIs for at least a three months period by deferring at least three EMIs. This would ensure that unintended defaults do not affect credit track record and bureau scores of customers," he said.

The industry body said most of its members have received requests from their customers, who are already facing a severe strain on their cash flows, for a deferral of EMIs.