Wednesday, 15 July 2020

'Moratorium extension may stretch asset-liability mismatch of NBFCs'

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  • IANS

New Delhi, May 25 : As the Reserve Bank of India (RBI) has allowed an extension of loan moratorium for three more months, a report by Motilal Oswal Financial Services said that although the move comes as a relief for the borrowers, it may stretch the mismatch in asset-liability management (ALM) for many non-banking finance companies (NBFCs).


"The RBI has announced an extension of three months for the existing loan moratorium, i.e., banks and NBFCs are now eligible to grant moratorium till Aug 31, 2020. In our view, this is a mixed bag for NBFCs -- while it provides relief to the borrowers, it also further stretches the ALM mismatch for many NBFCs," the report said.

It noted that while moratorium granted on loans varies from 20 per cent to 100 per cent across NBFCs, the moratorium provided to NBFCs from banks is negligible, which is likely to result in a cash-flow mismatch for NBFCs.

As a result, NBFCs would focus on conserving liquidity to honor payments, as per the report by the brokerage house.

Banks that refrained from providing moratorium on the argument of cash-flow based requirement may now be compelled to extend it to NBFCs or expedite the process of extending new lines of credit, it added.

"According to our analysis, most NBFCs have enough liquidity to sustain this ALM mismatch till August 2020. In addition, the larger NBFCs are getting sanctions from banks, while some are even able to raise money from capital markets," said the report.

However, it said that problems for small NBFCs remain as given the heightened risk aversion, banks are unwilling to lend to them, as was witnessed in the first auction of TLTRO 2.0. The extension of the moratorium further accentuates the problem, the report said, adding that risk aversion to this segment would continue until demand improves materially.

While the moratorium rate is an important factor in determining mismatch, an equally important one is the loan tenor. The longer the loan tenor, more the chances of a mismatch, it said.

"To put it simply, between an affordable housing finance company (HFC) and a vehicle financier (with the moratorium rate), the chances of an ALM mismatch at the HFC are higher," the report added.

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