{"id":30708,"date":"2020-04-11T19:04:59","date_gmt":"2020-04-11T13:34:59","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30708"},"modified":"2022-09-10T11:57:17","modified_gmt":"2022-09-10T06:27:17","slug":"clarification-needed-over-nbfcs-term-loan-moratorium-from-rbi","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/clarification-needed-over-nbfcs-term-loan-moratorium-from-rbi\/","title":{"rendered":"Clarification Needed Over NBFCs Term Loan Moratorium from RBI"},"content":{"rendered":"

The loan moratorium permits deferment of loan interest servicing and repayment for a period of three months. The Reserve Bank of India (RBI) does not particularly exclude the NBFCs from the moratorium. Several lenders are demanding from the State Bank of India (SBI) to cover non-banking financial companies (NBFCs) under the loan moratorium<\/a><\/strong> announced by the regulator as part of the COVID-19 relief package<\/strong>. NBFCs are worried that if the banks do not extend their moratorium, they will face a liquidity crunch. As indicated by the IBA, the privilege of working capital loans does not apply to NBFCs.<\/p>\n\n\n\n

Non-banking\nfinancial companies (NBFCs), which are functioning as microfinance institutions<\/a>\n(NBFC<\/a>-MFIs) has asked for clarification from the Reserve Bank of India (RBI) on\nwhether they are eligible for a three-month moratorium on loan repayments as announced by the central bank on March 27, 2020.<\/em><\/div>\n\n\n\n

What is the Confusion among Borrowers with Regard to NBFCs Term Loan\nMoratorium?<\/h2>\n\n\n\n

There has been a lot of confusion amongst the borrowers of Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) regarding their eligibility criteria for the moratorium. However, the Reserve Bank of India has addressed all the NBFCs, Housing Finance Companies, and All India Financial Institutions, along with the banks in its communication on the moratorium. All borrowers, whether they have taken a loan from NBFCs,<\/strong> banks, HFCs, or any other institutions, can opt for moratorium benefit.<\/p>\n\n\n\n

Read our article<\/b>:Loan Exposure of NBFC Increased: A Complete Analysis<\/a><\/mark><\/p>\n\n\n\n

The only difference comes between term loans and working capital loans. <\/em><\/strong><\/p>\n\n\n\n

Term\nloans<\/strong>– Loans taken from the bank at a fixed or sometimes\nat a floating interest rate are termed as term loans. These are short term\nloans offered to businesses for capital expenditure and also for expansion.<\/p>\n\n\n\n

Working\nCapital Loans<\/strong>: Working capital loans can be termed as\nshort term advances. <\/p>\n\n\n\n

The lending entities cannot compel the lenders to\npay the accrued interest on term loans during the moratorium period. However,\nin the case of a working capital loan, the deferred interest will be recovered\nimmediately after the moratorium period.<\/p>\n\n\n\n

NBFCs generally\nborrow from banks and then lend it to varied sectors such as automobiles,\nretail, and small enterprises. The non-banks are facing a liquidity shortage since ILFS defaulted its payment obligations<\/em><\/div>\n\n\n\n

SBI on NBFCs Term Loan Moratorium<\/h2>\n\n\n\n

The State Bank of India (SBI) will not offer any term loan moratorium to NBFCs<\/strong>; instead, it will provide funding under the targeted long-term repo operations (TLTRO), which was recently introduced by RBI. According to TLTRO, banks can invest in commercial papers, corporate bonds, and non-convertible bonds sold by companies, including the NBFCs<\/em>. <\/p>\n\n\n\n

However, other banks have not yet made clear whether they will follow the footsteps of SBI or the rules framed by the industry body Indian Banks’ Association (IBA). As per the IBA after the term loan moratorium is available to all the borrowers, including NBFCs. Only the dispensation on working capital loans does not apply to NBFCs.<\/strong> Meaning, working capital loans that are extended by NBFCs will not be eligible for the moratorium. <\/p>\n\n\n\n

However, the rules prescribed by RBI rules permit banks\nthe flexibility to offer dispensation to their borrowers, which means that it\nis up to the banks to decide on a moratorium of working capital loans.<\/p>\n\n\n\n

Read, Also:<\/b> Impact on Start-ups Business amidst Coronavirus (COVID- 19)<\/a><\/mark>.<\/p><\/div>\n\n\n\n

What should a customer be Aware of or the loans extended by an NBFC-MFI?<\/h2>\n\n\n\n

The customer must keep the following things in mind:<\/em><\/p>\n\n\n\n