The Reserve Bank's decision to extend moratorium on loan repayments until 1 September, 2020 is credit negative for the liquidity profile of non-bank financial institutions (NBFI) which normally manage their liquidity primarily by matching outflows with inflows, Moody's said in a report on Monday.
"The extension of this moratorium period is credit negative for the liquidity profile of non-bank financial institutions (NBFI).
NBFIs manage their liquidity primarily by matching outflows mainly debt repayments with inflows from customer loan repayments.
The moratorium on customer loan repayments, initially effective from 1 March, has led to a significant decline in cash inflows and adversely impacted the liquidity of NBFIs.
The extension of the moratorium will add additional stress to cash inflows, which will continue for at least three more months, it said.
On 22 May, the Reserve Bank of India allowed financial institutions to extend the moratorium on loan repayments to their customers until 1 September, 2020.
The Centre and the RBI have announced a series of measures to alleviate liquidity stress at the NBFIs.
However, the measures have been mostly ineffective.
In the most recent measure announced on 14 May, the government said it will guarantee up to Rs 30,000 crore of NBFI debt, according to Moody''s.
However, only debt maturing within three months is eligible, according to the implementation guidelines.
Moodys expects the short tenure of the debt guarantee will have little effect in alleviating the liquidity stress being experienced by the NBFI sector.
Currently, the moratorium by banks to NBFIs on bank loan repayments is the only meaningful relief for NBFIs to withstand liquidity stress.
Bank loans are an important source of funding for NBFIs and therefore, repayment holidays from bank loans will significantly help NBFIs manage liquidity, it said.
"However, it's not clear whether all of the NBFIs will benefit from the bank moratorium as we expect banks to evaluate individual NBFIs on a case-by-case basis. Further, a moratorium on bank loan repayments does not address the structural access to funding issues of NBFIs," the rating agency opined.
The impact of the extension of the moratorium will be different for public and private sector banks.
Public sector banks in general have been much more open to offering moratoriums than private sector banks, Moody's said.