Banks and non-banking financial companies (NBFCs) may find it difficult to extend the Reserve Bank of India’s moratorium on securitised loans under the current form of agreements, according to a report by CARE Ratings.
Last month, the RBI announced a relief package that included a three-month moratorium on payments of all term loans outstanding as on March 1.
According to the report, in existing securitisation transactions, the loans are not considered to be the assets of the originator/servicer which may be NBFCs or banks. “Hence, the servicing NBFCs/ MFIs / banks would not be able to extend the moratorium to the underlying loans in these securitisation transactions unless they have obtained consent from the investors,” the rating agency said in a report.
If the originators or servicers extend the moratorium to the borrowers of the underlying loans in these securitisation transactions without the prior approval of the investors, then it would be considered as a breach of contract, the report said. Even the existing documentation for these transactions does not envisage any such scenario of disruption in collections from underlying loans.