The stock market regulator is reluctant to grant a moratorium on 1.5 trillion worth of commercial paper and corporate bonds maturing in the first quarter, two people aware of the development said, putting a big chunk of them in danger of possible default.

A large number of issuers, facing impaired cash flows and bleak refinancing prospects due to the covid-19 outbreak and the ensuing nationwide lockdown, had approached the Securities and Exchange Board of India (Sebi), seeking approval for extending the maturity of the paper, according to the people cited above. India entered a 21-day lockdown beginning 25 March onwards and many states have already extended the lockdown beyond the initial period.

According to Prime Database, corporate bonds worth 91,902 crore and commercial papers worth 77,797 crore will mature before the end of May. Facing liquidity concerns in the backdrop of a prolonged lockdown, several issuers and bankers had asked the regulator to let them roll over the maturity of their paper.

The Reserve Bank of India (RBI) recently allowed banks to grant a three-month moratorium on loans, but Sebi is not keen to follow the model.

“Banks have given moratorium to consumers on what is owed to them under the central bank relief. In the case of bonds, the payment is owed to consumers. At a time when there is a need for cash in the hand of consumers, stalling or delaying these payments under regulatory mechanism will create unnecessary hardships to subscribers which includes not just banks but mutual funds and retail investors,” one of the two people cited above said on condition of anonymity. The regulator wants mutual funds, which have bought these papers, to handle any default or delay in repayment based on prescribed fair valuation policies, this official said.

“A letter has been sent to Sebi for considering this request. Both Sebi and the Reserve Bank of India should work in sync. If bankers can grant moratorium, why can’t Sebi give moratorium on corporate bond repayment?” a banker asked.

RBI on 27 March said financial institutions are “permitted” to grant a moratorium, meaning it is at the discretion of banks.

“With cash flows being impaired and companies finding it difficult to raise cheap funds, bankers believe that the markets regulator should allow rollover of these papers which are due over the next two months,” a market participant said on condition of anonymity.

Issuers could also attempt to tide over the liquidity crisis by raising funds under RBI’s Targeted Long Term Repo Operation (TLTRO) facility. “However, the results of TLTRO auction have shown that banks are investing only in the corporate bond papers of companies with AA rating and above,” this person added.

“Giving a moratorium will pose an issue for mutual funds as these schemes have a fixed maturity and they have to repay the investors. And their first obligation is towards investors, not issuers. The asset management companies (AMCs), in case of non-repayment of bonds, should use the available dispensation of fair valuation policy, side pockets in the best interest of investors,” said a second official, who declined to be named.

Swaraj Singh Dhanjal contributed to this story.

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