‘RBI’s re­vised cir­cu­lar no breather for NBFCs’

The Hindu Business Line - - BANKING - KR SRIVATS

Non-bank­ing fi­nance com­pa­nies (NBFCs) are not en­tirely en­thused by the RBI’s re­vised stressed as­sets cir­cu­lar, con­tend­ing that it does not give any ad­di­tional ad­van­tage or ben­e­fit to such com­pa­nies.

‘No ad­di­tional ben­e­fits’

Speak­ing to Busi­nessLine, Ra­man Ag­gar­wal, Chair­man, Fi­nance In­dus­try De­vel­op­ment Coun­cil (FIDC), said the lat­est RBI cir­cu­lar cov­ers NBFCs, but it does not give any ad­di­tional ben­e­fit to these com­pa­nies. The RBI’s erst­while Fe­bru­ary 12 cir­cu­lar is­sued last year had cov­ered only banks. Un­der the re­vised frame­work, even if a bor­rower pays to an NBFC but has de­faulted with a bank/small fi­nance bank, the NBFC gets roped in in sign­ing the In­ter Cred­i­tor Agree­ment and be­comes part of the res­o­lu­tion plan, he said.

“Fur­ther, in such cases, the NBFC’s role shall be highly sub­dued, since its share in the over­all value would be be­low 75 per cent. So, we may end up in a sit­u­a­tion where the NBFC may be forced to fol­low the res­o­lu­tion plan, fail­ing which ad­di­tional pro­vi­sion­ing may be re­quired. As such, this does not add value to the en­tire re­cov­ery process of NBFCs,” said Ag­gar­wal. It may be re­called that the re­vised frame­work pro­vides that sign­ing of in­ter­cred­i­tor agree­ment (ICA) by all lenders is manda­tory, which will pro­vide for a ma­jor­ity de­ci­sion cri­te­ria.

The ICA would pro­vide the de­ci­sion agreed upon by lenders rep­re­sent­ing 75 per cent of the value of to­tal out­stand­ing credit fa­cil­i­ties and 60 per cent of lenders in num­ber.

This is a new re­quire­ment where the de­ci­sion-mak­ing is not only linked to the quan­tum of loan ex­tended by the lenders but also the num­ber of lenders, ac­cord­ing to a PwC re­search note on the re­vised RBI cir­cu­lar. Mean­while, FIDC has given its feed­back on the RBI’s re­cent draft guide­lines on ‘Liq­uid­ity Risk Man­age­ment for NBFCs and Core In­vest­ment Com­pa­nies’. FIDC has, among other things, sug­gested that the guide­lines be made con­comi­tant with the pro­vi­sion of a mech­a­nism of liq­uid­ity sup­port for NBFCs.

“Cur­rently, tight liq­uid­ity con­di­tions in the in­dus­try have made gen­er­a­tion of funds a very dif­fi­cult task, and we re­quest the RBI to kindly con­sider putting in place a suit­able mech­a­nism for such liq­uid­ity sup­port,” said Ag­gar­wal in a let­ter de­tail­ing the feed­back to the RBI’s draft guide­lines.

Al­ter­na­tively, the im­ple­men­ta­tion of these guide­lines may kindly be de­ferred un­til re­turn of nor­mal liq­uid­ity con­di­tions for the sec­tor, he added.

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