Mumbai, Aug 12 The Reserve Bank of India's decision to allow lenders to restructure loans would increase their refinancing requirements, especially for non-banking financial companies (NBFCs), India Ratings and Research said on Wednesday.
According to Ind-Ra, scheduled cash inflows will get deferred, though the severity would depend upon the proportion of loan portfolio restructured and terms of restructuring.
"While restructuring would relieve the repayment pressure on borrowers and can help them to overcome any short-term stress, it would require sound guardrails and critical assessment of viability so that it is not used as an instrument to postpone the problems, as seen previously," it said.
"Credit cost pressure gets alleviated since lenders have to provide 10 per cent on the restructured debt. However, this may prove to be inadequate in case the slippages were to be elevated."
Accordingly, the rating agency pointed out that a higher quantum of restructured assets would clearly reflect higher asset quality challenges for NBFCs and can restrict their ability to mobilise funds from banks and capital markets.
"At end-June 2020, a substantial portion of the NBFCs' loan book was under moratorium. Housing loans had the least portion of the book under moratorium while the wholesale lenders had the maximum portion of their loans under moratorium," the agency said.
"The collection efficiency, reflecting the repayment behaviour of customers, has improved since April 2020 with the easing of lockdown restrictions. However, regional lockdowns did impact collections during July 2020."
As per the agency's statement, the collection levels across asset classes, and segments were far below pre-Covid levels.
"Businesses still did not generate cash flows sufficient enough to make their timely debt repayment," it said.
"Ind-Ra believes a high proportion of loans to certain segments such as real estate developers, commercial vehicle owners and micro, small and medium enterprises will be restructured, given the weakness in these sectors."
Although the restructuring package would help borrowers to manage their debt repayments, it is just a temporary solution to the problem created by the pandemic, it said
"The overall health of NBFCs could improve only with a revival in the underlying economy and the cash flows of borrowers. The situation, as far as the spread of the virus is concerned, is extremely dynamic," the agency added.
"In case of a second wave of pandemic, the situation may turn grim and borrowers may not be able to meet the restructured debt repayment terms, thereby increasing the credit cost and asset quality pressures."
( With inputs from IANS )