/NBFCs face a litmus test on their bond liabilities

NBFCs face a litmus test on their bond liabilities

Non banking finance companies (NBFCs) may have got a moratorium from banks on their loan payments but over Rs 76,000 crore of repayments in the debt market in the next three months could well be the litmus test amidst an economic crisis. Many of these companies are facing liquidity issues and could find it difficult to make payments on their bond liabilities.

Data from PrimeDatabase shows that more than 100 NBFCs will have to repay Rs 76,093 crore collectively in June, July and August as their bonds are coming up for maturities. A majority of these NBFCs are top rated but some of them could face a challenge in paying back.

Moreover, the moratorium offered by banks also is not a blanket one as banks will assess NBFCs on a case to case basis.

“The moratorium is available for NBFCs but we will take a call on a case to case basis. It will depend on their cash flows and other factors. Some NBFCs have started collections in April and May and to that extent they have enough headroom and liquidity. All these factors will be taken into account,” said State Bank of India (SBI) chairman Rajnish Kumar.

Banks led by SBI have extended the moratorium to NBFCs reluctantly as they do not want to be left with the can as these companies pay off their market linked borrowings but delay their bank repayments. NBFC borrowers from SBI for example will have to show a cash shortage to prove that they will not use the relief to divert funds for other purposes to avail the moratorium.

“We have to identify their outflows and payments and see how their collections have been. It should not be a situation that they pay off their bonds through their inflows and banks are left holding all their debt after the lockdown is lifted,” said a senior public sector bank official.

Some large lenders are not offering moratorium to NBFCs but are rather offering them a fresh credit line to tide over their liquidity issues. These loans are also offered to large NBFCs which are highly rated which means liquidity is available to a select few.

Bankers however point to measures from the government and RBI targeted specifically for NBFCs like partial credit guarantees, stressed asset funds and targeted repos. They say NBFCs have enough avenues and access to liquidity.

“We must keep in mind that many NBFCs are seeing an improvement in their collections. There are also measures announced by the government and the RBI to provide
NBFCs with required liquidity. The policy measures should take care of NBFCs,” Kumar from SBI said.

However, NBFC executives say the measures annouced so far do not address their problems as credit guarantee schemes and special funds are only for bonds at the shorter end while NBFCs need support at the longer end of the bond maturity.

“Clarifications on the discretion of allowing moratorium by instruments like bonds and by entity like NBFCs would help,” said Jaspal Brinda, chairman of Centrum group. The moratorium extension will allow needy borrowers to manage their working capital requirements post lift of the lockdown and will save lenders potential defaults. The transmission of liquidity from banks to borrowers needs to happen,” he said.

NBFCs are now stuck between banks that are reluctant to extend them moratorium benefits and large capital market payments due in the next few months even as loan collections have been severely impacted in April and May because they are forced to offer the moratorium to their own borrowers.

Analysts said lack of clear cut extention of moratorium to NBFCs will accentuate their liquidity challenges.

“With extension in the moratorium to be offered to borrowers, their asset side cash flows would continue to be impacted. Further, it is not expected that they will get any moratorium on their capital market debt repayments. The recent announcements made on the guarantee and partial guarantee schemes will alleviate the concerns somewhat but what will be key is the extent to which banks will extend moratorium to NBFCs,” said Krishnan Sitaraman senior director Crisil.

Finance Industry Development Council (FIDC), an industry body for NBFCs, has already written to finance minister Nirmala Sitharaman highlighting the concerns of the sector after the government restricted a new Rs 30,000 crore fund to provide liquidity support to NBFCs to non-banking only investment-grade paper of short-term three month maturity.

NBFCs want a long-term window of at least three years to access credit as they prepare for new loan expansion post the lockdown.

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