RBI moratorium extension negative for NBFCs; bet on housing finance companies: Emkay Global

May 22
14:02 2020

The Reserve Bank of India (RBI) on May 22 decided to permit lending institutions to extend the moratorium on term-loan repayments by another three months to August 31, 2020.

On March 27, the central bank has permitted all commercial banks, co-operative banks, all-India financial institutions, and NBFCs, including housing finance companies and micro-finance institutions, to put on hold for three months payment of instalments of all term loans outstanding as on March 1, 2020.

The RBI’s decision to extend the moratorium to August 31 could turn out to be a major negative for non-banking financial companies (NBFCs), Emkay Global has said in a note.

Here’s the full text of RBI Governor Shaktikanta Das’ May 22 conference

 “We read this as major negative for all NBFCs (including the ones with strong liability franchises), as this would further delay the overall collection and recovery procedure, and stretch the total liquidity cycle for all. In addition, this would further damage financial discipline, especially for small-ticket borrowers and MFIs,” the note added.

The note highlighted that there was no clarity yet over the moratorium extension for NBFCs from banks. “Most of the large NBFCs stayed away from opting for a moratorium; however, we think they also need to change stance over this. Hence, confusion multiplies now,” it said.

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Another worry remains over lack of clarity over asset reclassification standstill which expires on May 31. “In the absence of an extension, we would see a large chunk of NPA additions, along with sizeable increase in provision requirement for all lenders,” it said.

Although the 40bps cut in policy rate cut would support margins, especially for better NBFCs, further moratorium extension would be bigger trouble for large ones.

“We have been reiterating that housing finance companies (HFCs) are better placed in comparison with asset finance companies (AFCs). However, near-term pressure for all is inevitable. Bajaj Finance, Cholamandalam Investment & Finance Company, and M&M Financial Services could be a little more vulnerable now,” said the Emkay Global note.

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Check our complete coverage on RBI’s May 22 announcements here

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