NBFCs urge RBI for Restructuring Loans and Fresh Liquidity Support amidst Covid-19

NBFCs urge RBI for Restructuring Loans and Fresh Liquidity Support amidst Covid-19

Non-Banking Finance Companies recently moved RBI seeking restructuring of loans and also seeking fresh liquidity support for on-lending to small firms. The Finance Industry Development Council, which is a representative body of NBFCs, sought these measures from the RBI through a letter. In this article, we shall discuss these demands for restructuring loans and fresh liquidity support.

Why did NBFCs make such demands (restructuring loans and fresh liquidity support)?

These demands have been made due to the persisting second wave of the Covid-19 and the lockdowns imposed by the state governments. The second wave of the Covid-19 has already impacted industries and especially the self-employed segment that is left with little or no backing. Due to the second wave of covid-19 retail borrowers, including the MSMEs and the wholesale and the retail trader industry, require immediate assistance from the lenders to review their economic activities. MSMEs contribute tremendously to the GDP.

The second wave of the pandemic has already hurt the NBFCs collection. The lenders need more support for providing credit to borrowers. Thus NBFCs have requested the Reserve bank for restructuring loans and providing liquidity support to tide over the hurdles due to the second wave.

Restructuring loans and fresh liquidity support: Demands made by Finance Industry Development Council

The Finance Industry Development Council requested to enhance the overall support in RBI’s outlay to All India Financial Institutions from 50 thousand crore rupees to at least 75 thousand crore rupees. Further, it asked for an additional 25 thousand crore rupees to be made available exclusively to the medium as well as to small NBFCs through SIDBI for three years. The extant allocation for other sectors can continue with their prescribed limits.

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The Finance Industry Development Council[1] also asked RBI for restructuring loans of small NBFCs from banks and financial institutions. The loan restructuring would ensure that small NBFCs stay eligible for bank finance with no mismatch in their asset liability position and thereby help them to support their retail and wholesale borrowers with fresh credit. 

The Finance Industry Development Council demanded that borrower accounts, regardless of whether or not such accounts had been restructured earlier and which are standard accounts as on 31st March 2021, be allowed restructuring without any downgrade in the asset classification, subject to the lending NBFCs undertaking fresh credit assessment of the borrowing entity.

Fresh liquidity support

As stated above, the Finance Industry Development Council also sought fresh liquidity support from the governor for on-lending to MSMEs. Due to the Covid-19, RBI had announced liquidity measures of 13 lakh crore rupees last year. It announced the TLTRO on tap scheme on 9th October 2020, which was available till 31st March 2021. In addition to the five sectors announced under the scheme, 26 stressed sectors identified by the Kamnath Committee were also brought under the ambit of sectors eligible under the on-tap TLTRO on 4th December 2020 and bank lending to NBFCs.

The Liquidity availed by banks under the scheme should be deployed in the corporate bonds, commercial paper and in non-convertible debentures issued by entities in these sectors. It can be used to provide bank loans and advances to these sectors.  The RBI extended this TLTRO scheme to further six months.

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Future of NBFCs amidst Covid-19

The second wave of the current pandemic may intensify in May and might come down in June. In such scenario, NBFCs would start reeling under the pressure of high Non-Performing Assets while handling the demand of moratorium and restructuring from the present and deserving customers.

Many borrowers do different kinds of work, such as they are machine operators, marginal farmers, shopkeepers, taxi drivers, workshop owners and local contractors in the NBFC segment. These borrowers are mainly hit by the statewide and localised lockdowns imposed in different parts of India.


The Finance Industry Development Council stated that the Reserve bank has been continuing to provide the time for on-lending benefit by six months at the review time on an ad-hoc basis. The Finance Industry Development Council, in its letter, said that it would be helpful if the RBI extends its 6th August 2020 notification on one-time restructuring loans till at least 31st March 2022.

Read our article: Regulatory Framework for NBFCs: A RBI Revision

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