Benefits Decoded: What RBI announcement really means for NBFCs - point by point

RBI Governor Shaktikanta Das today made a major announcement to pull the Indian economy out of the corona caused crisis. Indicating that India is standing strong in the midst of coronavirus pandemic, RBI governor said, "IMF projection of 1.9% GDP growth for India is highest in G20." He added, "India is expected to post sharp turnround in 2021-22. RBI will announce new measures to maintain adequate liquidity in system, facilitate bank credit flow, ease financial stress"

Now, non-banking finance companies (NBFCs) can extend the date for commencement for commercial operations (DCCO) by a year, in the case of loans provided to commercial real estate projects which have been delayed for reason beyond the control of promoters.

Announcing a slew of liquidity and regulatory easing steps on Friday, RBI Governor Shaktikanta Das said that the extension can be made without treating the process as restructuring. Das noted that the move will bring relief both to the NBFCs and developers.

Das explained, "The date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring. It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate."

In her reaction to the various announcements by RBI governor, Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas, explained what it meant for all concerned. She said, “For the NBFC sector, at least some of their immediate problems seems have been addressed. The liquidity tap opened for NBFCs, whether through TLTRA 2.0 or through refinancing facility which the NHB can extend, are both significant measures and the market would see NBFCs actively availing this relief in the coming days.”  

Sivaramakrishnan added, “The fact that the liquidity availed by the banks under TLTRA 2.0 has to be evenly distributed between small and large NBFCs is a measure towards ensuring that the sector as a whole can avail of the liquidity injected”

Sivaramakrishnan further explained, “Relaxation and deferment to a Borrower should necessarily be married to the health of a bank. The 3 main relaxations, i.e. (i) 90 day NPA classification excluding the forbearance for lockdown period on account of COVID-19, (ii) extension of resolution timeframe by an additional 90 days for accounts already under stress under the Resolution Framework and (iii) some short term relaxation in provisioning for the accounts which avail these benefits, will each provide immediate relief to the stress in this sector.”

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Sivaramakrishnan also said, “In the real estate sector, for projects which are in financial difficulty for no fault of the borrower, an additional one year extension to commencement of operations without the risk of ‘restructuring’ as a tag provides the necessary relief by way of time to projects which are otherwise viable and can perform.”