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Non-bank lenders seek to tap unused credit lines to manage liquidity

Monday, April 20, 2020
Economic Times

Small and midsize non-banking finance companies (NBFCs) including microfinance firms are desperately looking to draw the unused sanctioned loan limit from banks since the Reserve Bank of India's liquidity window may help meet only a part of their requirements, people tracking the sector said.

They are seeking the unused sanctioned limits even though they have not fully disbursed the funds lying with them. This is because the halt in repayment collection has dried up their cash flows, even as they haven’t received any moratorium from most banks.

The fact that banks are barred from investing in firms with below investment grade papers is also not helping a swathe of small NBFCs. Banks are also hesitant in investing in lower rated investment grade papers.
“We have begun dialogues with our lenders to avail of the unused sanctioned limits as we need it for liquidity management as well as for fresh lending,” said Dibyajyoti Pattanaik, a director at Odisha-based micro lender Annapurna Finance. “Our borrowers would need fresh dose of finances to resume their businesses when the lockdown will be lifted.”

The overall need for NBFCs may be close to Rs 2 lakh crore, Emkay Global Financial Services NSE -2.39 % said in a note. The RBI on April 17 announced a new Rs 50,000 crore liquidity tap for them through targeted long-term repo operations with a direction to banks that at least 50% of it should go to small and mid-sized entities.

“Much more needs to be done to ensure liquidity reaches where it is needed. The fact is, banks are increasingly risk-averse and prefer to restrict their lending to higher-rated entities only, which defeats the purpose,” Manappuram Finance managing director VP Nandakumar said.

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