Extension of the RBI announced three month moratorium on loans by banks to NBFCs has been a borne of contention between banks as some large lenders led by SBI have refused to extend it to NBFCs citing misuse by these borrowers.
SBI argued that unlike non financial companies NBFCs have not been totally hit by the lockdown as some borrowers just like they are servicing their bank loans are also continuing to pay back NBFCs.
It was difficult to check how much of the loans were being paid back by NBFCs. Also, some back executives were worried that NBFCs which are mostly promoter driven would divert the cash flow gains out of the moratorium to their other businesses or pay off other borrowings like from the bond market.
“These concerns had so far kept NBFCs out but things have gotten worse now and so there is a realisation that these companies need the moratorium to survive. Also, there has been a Supreme Court order on extension of moratorium to all which means that extending it to NBFCs is a done deal now,” said a bank executive closely involved in these negotiations.
Last week the Supreme Court directed the RBI to ensure that its circular on loan moratorium was implemented in “letter and spirit,” increasing pressure on banks to extend the leeway to all borrowers without distinction.
RBI’s reluctance to clarify its stance on the moratorium to NBFCs had also led to confusion on the issue with the central bank privately hinting to banks that it was okay with the facility not being extended to NBFCs.
However, in a meeting with bank chiefs on Saturday RBI governor Shaktikanta Das said bank boards can take their own call on the extension of moratorium to NBFCs. SBI has now decided to seek approval from its decision making executive committee and put the moratorium into effect for NBFCs.
“This will mostly be approved. Its just a formality,” said the person cited above.
Other public sector banks will also extend the benefit to NBFC customers. “SBI is the largest bank with 40% share of NBFC lending. If they dont do something it is difficult for us to do it. Once they do it we will have no reason not to. It is only fair that we extend this facility to NBFCs when they are extending it to their borrowers,” said a senior executive at a public sector bank.
Banking sector exposure to NBFCs is among the highest.
Latest data shows that banks’ lending to NBFCs surged in March, the highest on month since 2008, as the shadow lending industry bulked up before the financial year closure.
Total loans grew 4 percent in the same period at Rs 3.57 lakh crore, data from RBI shows. While NBFC accounted 32 percent of the total, loans to industry also grew, including loans to MSMEs.