Skip to main content

NBFCs facing liquidity crunch call for ease in securitisation norms

The NBFC sector wants securitisation guidelines to be amended to do away with the prescribed minimum holding period and minimum retention requirement.
NBFCs are demanding relaxation of securitisation norms to ease funding woes and to defer the rules on working capital loans which they say are compounding their problems inflicted by the credit squeeze. The NBFC sector wants securitisation guidelines to be amended to do away with the prescribed minimum holding period and minimum retention requirement. The sector wants minimum holding period for loans with maturity of 2-5 years be reduced from 6 months to 3 months. On December 5, RBI issued a circular asking for compulsory bifurcation of the working capital for borrowers enjoying an aggregate fund-based working capital finance of Rs 150 crore and above from the banks. In a letter to RBI governor, the NBFC sector has asked for a year delay in implementation of the new working capital norms keeping in mind the criticality of the sector for its role of catering to the credit needs of the micro, small and medium enterprise (MSME) class, especially at a time when the sector continues to face a liquidity crunch. 
Also, NBFCs want the sub-limit or the loan component within the working capital facility to be re-instated automatically upon maturity to ensure continuation of the working capital facility. This would ensure that just paying the interest on the loan would suffice once the loan matures; the principal can be paid off when the NBFC collects enough funds from its receivables. NBFCs want the pricing for the loan component to be based on its tenor linked with respective period MCLR and tenor premium of the bank. Securitisation provides liquidity to NBFCs and enables banks to build their loan books aggressively in addition to meeting their priority sector lending targets.
The Economics Times, 14th May 2019


Popular posts from this blog

April GST collections at new high despite rate rationalisation in December

Goods and services tax (GST) collection touched a record high in April, exceeding Rs 1 trillion for the third time in four months. The mop-up was 10 per cent higher over the previous year. Gross collection for the month was Rs 1.13 trillion, said the finance ministry. Despite the recent rate rationalisation in December, a rise in collection was reported. Of the total collected, the CGST (central GST) contributed Rs 21,163 crore, the SGST (state GST) Rs 28,801 crore, the IGST (integrated GST) Rs 54,733 crore (including Rs 23,289 crore on import) and cess Rs 9,168 crore (including Rs 1,053 crore on import). After settlement of the IGST and the balance IGST in a 50:50 ratio between the Centre and states on a provisional basis, the CGST stood at Rs 47,533 crore and SGST at Rs 50,776 crore. The CGST target in the Union Budget for 2019-20 is Rs 6.1 trillion. “The April collection indicates the tax base is increasing gradually, with GST getting stabilised with measures such as e-way bills and…

Defaults are Costly: Bankruptcy Law Gives Lenders More Teeth

Lenders can bargain strongly on asset recovery, defaulting borrowers can lose control of co With the Bankruptcy Act in place, banks can breathe easy, at least in the medium term, as corporate borrowers will now intensify their efforts to avoid loan defaults and the likely loss of management control of business, said Moody's Investors Service. This will empower lenders to bargain strongly in matters of asset recovery, while borrowers can gain with lower borrowing costs after three-four quarters. “The (defaulting) borrowers will lose control of the company as soon as the process is initiated,“ Srikanth Vadlamani, vicepresident, Financial Institutions Group, Moody's Investors Service, told ET from Singapore.“This, in itself, should act as a key incentive for them not to default in the first place.“ A few weeks ago, the government passed the Bankruptcy Bill, introducing a time-bound settlement process against loan default. With the Bankruptcy Act, the resolution process-from the date …

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…