No Loan Restructuring for NBFCs

The Reserve Bank of India’s one-time loan restructuring will bring relief to many stressed borrowers. However non-banking financial companies (NBFCs), have been left out of the list of eligible entities. Industry experts believe that this could turn credit negative for NBFCs, which are already struggling to meet liquidity requirements. NBFCs had been dealing with pain since 2018 when defaults at Infrastructure Leasing and Financial Services sent shockwaves across the financial services sector, while covid-19 accentuated the stress. Restructuring will help non-bank lenders, banks and borrowers clear their long-term plans, enabling repayment of dues when the economy revives. With the new RBI framework excluding financial service providers, the NBFC sector will need to look at other avenues of asset monetization and relief. However, the sector seems to be divided over the eligibility of NBFCs under the scheme. Some well-rated NBFCs believe that restructuring is not required as liquidity has improved significantly. The ones that need liquidity can resort to other measures announced by the government and central bank. Since March, the government and the central bank have announced several measures, including the Targeted Long-Term Repo Rate Operations 2.0 (TLTRO) of ?50,000 crore to improve access to liquidity for NBFCs and microfinance institutions. RBI governor Shaktikanta Das on 6 August announced an additional special liquidity facility of ?5,000 crore for the National Housing Bank to ease the stress of housing finance companies.