SBI to extend moratorium to NBFCs

Mumbai | Kolkata: The executive committee of the State Bank of India (SBI) board has finally approved extending the central bank moratorium to shadow lenders, which will have to individually apply to avail the benefit.

Those eligible for the benefit will have to show a cash shortage to prove that they will not use the relief to divert funds for other purposes.

“It is not being offered by default. NBFCs will have to apply for it. Our business units will then decide which ones will get the relief. They will have to show their cash inflow and outflow to prove that they need this relief and will not use the money for some other purposes,” said a person with direct knowledge of the decision.

SBI’s decision could open the door for other public sector banks to also extend similar benefits to these lenders.

Already, Punjab National Bank (PNB) has communicated to its NBFC clients about extending the moratorium earlier this week.

“We have sent mails to all NBFCs so that they can tell us about their intention on the moratorium. We are taking a call based on that,” a senior executive at PNB told ET. “We will assess it on a case-by-case basis.”

Banks were earlier divided over the issue. While some started offering it from early April, SBI and several other large lenders, especially from the public sector, were against it.

SBI to Extend Moratorium to NBFCs

So far, SBI had refused to extend the benefit to NBFCs, citing potential misuse by these borrowers. It argued that unlike non-financial companies, NBFCs have not been totally hit by the lockdown.

Latest data show that banks’ lending to NBFCs surged in March, the highest on-month since 2008, as the shadow lending industry bulked up before the end of the financial year.

Total bank credit grew 4% by ₹3.57 lakh crore in the month, with NBFCs accounting for 32% of loans, data from the RBI showed.

Also, some bank executives were worried that NBFCs which are mostly promoter-driven would divert the cash flow gains out of the moratorium to their other businesses.

There were also concerns that the grace period may be used to pay off other borrowings, like those from the bond market.

“Those concerns are still there. Hence, we want to see their cash flows. They can easily divert this money to pay off their unsecured loans and shareholders’ liabilities which will leave banks holding the can. These companies deal in money unlike, say steel companies, which need raw material or have their receivables stuck,” said a person quoted above.

SBI’s decision also follows a Supreme Court order last week, which 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.

The RBI on Saturday had conveyed to top banks that even NBFCs including microfinance firms and housing finance companies are covered under ‘borrowers’ to be eligible for the moratorium.

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