TLTRO 2 of Rs 50,000 crore will benefit the NBFCs: Ramesh Iyer, M&M Financial

Ramesh Iyer, Vice Chairman & Managing Director, Mahindra & Mahindra Financial Services Ltd., talks about the relief that has been granted to NBFCs from RBI, moratorium and NPAs among others during an interview with Swati Khandelwal, Zee Business.

Edited Excerpts:

Q: Reserve Bank of India (RBI) sector has provided certain relief to the NBFC sector. Do you think that the announcements will give a relief to companies and what is your view on them especially the steps taken to improve the liquidity situation in the system?

A: As I have said earlier that we have requested the RBI to provide some support to NBFCs through the liquidity. The TLTROs which was announced earlier was a common one but this one has been allocated specifically for the NBFCs. This will definitely benefit the NBFC sector as 50% part from the announced Rs 50,000 crore has been allocated to the small and medium NBFCs. This gives me a feeling that it will provide a direct benefit for every NBFC may it be small of big NBFC. As far as the reverse repo rate is concerned, which has been brought down will provide liquidity to the banks, which will be used for disbursement. And, each NBFCs will be individually seen and provided additional funding support, which is good. The third thing is related to the opening balance of March and we requested it to provide the 90-day moratorium because they are standard customers and are running behind in one or two instalments. They should be provided moratorium because they are doing the same work and in the same area where others are working. So, the RBI has approved the demand and asked to freeze them and not count them under NPA. They have been provided with a moratorium till May 31. Overall it is a very favourable announcement and we will wait for a detailed circular which may provide detail those NBFCs will also be provided with a moratorium from the banks, otherwise, every request has been accepted

Q: There is no clarity on providing moratorium to NBFCs as there is no specific announcement in this relation. So what are your expectations?

A: It is that certain banks had an understanding that the moratorium was allowed even to the NBFCs while others needed clarification on the same. If we talk about the private banks than they have provided moratorium and I think after the detailed circular is out then it may provide a clarification that banks should provide a moratorium to NBFCs. Secondly, if a bank doesn’t want to provide a moratorium due to certain reasons but can provide liquidity support is also great support.

Q: NPA recognition has been eased off but provisioning requirement has been increased. So, should be considered that the stress will increase in days to come, if yes, then let us know the kind of financial stress that it will create on your and bank’s books?

A: As far as NBFCs are concerned than we are in there and we are at stage-I and stage-II provisioning level, which means that we will not the pressure of this additional provisioning. The banks are on a different accounting platform and that’s why they will have an impact on the decision. It has been done to cushion certain provisioning. However, this provision of 10% is not applicable for NBFCs as we are in Ind-AS and have already provisioned certain accounts in stage-I and stage-II.

Q: Do you think that the reduction of reverse repo rate will put pressure on the banks to lend instead of investing in other instruments?

A: I think, the whole purpose is to make sure that the banks can start using their liquidity in disbursement or support lending. So, I think bringing down the reverse repo rate will allow banks to divert a certain amount towards lending, which in return will benefit the NBFCs whose rating are good and the loan limits of the NBFCs can go up. It is necessary to understand that today we are not talking about business and disbursement at present but it will be required in next one-two months after the lockdown comes to an end in May 2020 and the market will move in a positive direction. So, I think this is a good move and will give support to the growth soon.

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Q: Will you pass on the benefits to customers?

A: We have already announced a moratorium for the customers as it was very clear that they will not be able to pay the instalments in this period. Secondly, we also had a directive from the RBI that moratorium is available for a retail customer and this benefit has been passed on to the customers. Besides, we will also try to reduce the interest that we have decided to slap on a moratorium that has been offered to customers as per the reduction in the rates of our borrowings. The disbursements that will be made in future will also come at a low rate and I think that these benefits will be passed on to the customers in different ways.