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Debt recast: FIDC suggests dropping further provisioning requirement for NBFCs

MUMBAI: The Finance Industry Development Council (FIDC), a consultant physique of non-banking finance firms, on Monday urged Finance Minister Nirmala Sitharaman to drop further provisioning necessities for NBFCs on accounts restructured underneath the one-time mortgage restructuring scheme.

In August, the Reserve Bank of India (RBI) allowed one-time restructuring of company and private loans because of the COVID-19 pandemic. Under the scheme, lending establishments must make an extra provisioning of 10 per cent for accounts the place restructuring plans are carried out.

In a letter to the finance minister, FIDC additionally mentioned non-banking monetary firms (NBFCs) have been mandated to observe Indian Accounting Standard (IND-AS) norms on provisioning for credit score losses and these provisions are a lot increased than the RBI norms.

“IND-AS norms require provisioning to be done for credit losses on historical average and own experience of respective lenders and, therefore, all accounts are adequately provided for. We suggest that the additional provisioning requirement may be dropped for restructured accounts for NBFCs,” FIDC mentioned within the letter.

Last week, Sitharaman held a assessment assembly with the heads of banks and NBFCs on the one-time debt recast scheme.

The minister had requested banks and NBFCs to roll out mortgage restructuring schemes for COVID-19-related stress by September 15 and supply ample help to the debtors following the lifting of moratorium on reimbursement of money owed.

She additionally urged lenders to instantly put in place a board-approved coverage for decision of stress loans.

Under the debt recast framework, solely these borrower accounts shall be eligible for decision that have been labeled as commonplace, however not in default for greater than 30 days with the lending establishment as on March 1, 2020.

FIDC has requested to incorporate underneath the scheme all the usual accounts within the 0-90 day bucket.

“Given that the micro and small enterprises have uneven cash flows and even prior to COVID-19, were having viability issues, we seek your consideration of this scheme for all the standard accounts in the 0-90 day bucket so that the wider spectrum of customers can benefit from it,” the business physique mentioned.

FIDC additional mentioned that at present, the loans given for passenger automobiles and tractors, each used within the enterprise and/or business functions, are excluded from the protection of the Emergency Credit Line Guarantee Scheme (ECLGS).

“We request inclusion of passenger vehicles to self-employed customers and tractors to small and marginal farmers within the ambit of the scheme,” it mentioned.

The present ECLGS scheme mandates 1+3 years of reimbursement during which the shopper can pay curiosity for the primary yr after which reimbursement of mortgage is finished within the subsequent three years.

“Our existing loan size is very small and at times, the customer may not want 1+3 years but a lesser period of repayment. We request flexibility in fixing the tenure but not exceeding 1+3 years based on the customer’s desire and cash flows,” it mentioned.

FIDC has requested to extend the tenure of assure underneath the Partial Credit Guarantee Scheme 2.0 to 36 months from 18 months which might encourage banks to lend to NBFCs for 36 months.

The business physique mentioned numerous small and medium-sized NBFCs are usually not geared up to problem bonds and are unable to utilise the advantages of PCG 2.0 window.

“The scheme can also be extended for term loan facilities granted to the NBFCs but limited to end use of funds for lending to micro and small enterprises,” it steered.

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