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NBFCs with exposure to housing & construction send SOS to RBI

MUMBAI: Non-bank lenders with large exposure to construction finance and housing finance companies have written to the Reserve Bank of India (RBI) Governor Shaktikanta Das, saying they will run out of cash by May-June if they don’t get the benefit of the moratorium on repayments applicable to other borrowers.

NBFCs have claimed that while they would have zero cash by June, housing finance companies will have only 4.5% cash reserves remaining, levels considered precariously low against the regulatory minimum of 15% capital adequacy. The worry also is that once the moratorium period gets over, rating agencies will start downgrading these companies due to high leverage.

“The repayments of bank loans, commercial papers, bond payments, and ECB payouts will exhaust the liquidity buffers of the companies, reducing the cash to dangerously low levels,” the CEO of an NBFC said, on the condition of anonymity.

“If the liquidity buffer comes down to these dangerously low levels, rating agencies will further downgrade the companies,” the person said.

According to an estimate presented to the RBI, the three-month moratorium will cause a liquidity loss ranging from 4.5-9% on the books of non-bank lenders and housing finance companies.

So, at the end of June, NBFCs will be left with nil liquidity cover while HFCs will maintain a cover of 4.5%, as per the submission made to the RBI.

The average liquidity maintained by these companies is 8-9% of their loan book.

To tide over the liquidity situation, NBFCs have also sought that moratorium be extended to all term loans, cash credit facilities and ECBs availed. The non-bank entities have extended moratoriums to their customers including retail and institutions.

“Construction and housing activity have nearly stopped amid the nationwide lockdown, indicating that the major hit will come from those segments,” said the chief financial officer at a mid-sized NBFC.

They had requested that a special LTRO window, or some kind of refinancing outlet up to Rs 50,000 crore, be opened up for NBFCs and HFCs with ratings lower than AA.

A request has also been made to advise Sebi, IRDAI and PFRDA to extend the moratorium to all bond borrowings done by issuers.

In a separate two-page representation,industrybody FICCI has requested the RBI to mandate banks to utilise at least 50% of the funds raised under the TLTRO window for funding the NBFC and the HFC sector.

It also requested the RBI to consider a separate direct line of credit only for non-bank lenders.


April 17, 2020

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