As the regulator and the banks now await for the KV Kamath-led panel to come out with the modalities of restructuring of loans for both corporates and individuals, sources in the government and industry say that the Reserve Bank of India (RBI) may not extend the moratorium period for loans, that comes to an end on August 31.
Banks may put in place board-approved policies to deal with stressed loans to individuals. Besides, while there have been suggestions that the current proposal of allowing restructuring for loans that are overdue for up to 30 days should be extended for those that are overdue for at least 60 days, a senior government official said “RBI will be looking into this area”.
Stating that the outer limit of extending the repayment terms by two years for corporate as well as individual loans is unlikely to be extended, the official said that “RBI will look into suggestions on allowing restructuring for loans that are overdue till at least 60 days, as against the present proposal of 30 days.”
Bankers say that once the restructuring of loans is permitted, it is not wise to continue with the moratorium.”While the moratorium does not permit banks to tinker with the tenure and leads to a rise in EMI after the end of the moratorium period, the restructuring will allow banks to extend the term of the loan by up to two years, thereby bringing the monthly EMI component down for the borrowers,” said a senior official with a bank.
As per the contours of restructuring scheme announced by the central bank on August 6, only those companies and individuals whose loan accounts are in default for not more than 30 days as on March 1, 2020, are eligible for one-time restructuring.
For corporate borrowers, banks can invoke a resolution plan till December 31, 2020 and implement it till June 30, 2021. Such loan accounts should continue to be standard till the date of invocation. Companies that were already in default for more than 30 days as on March 1, however, cannot avail this facility. Sources said this could affect revival plans of companies that were about to regain profitability but got hit when the lockdown was imposed.
“There is a genuine issue. Many companies were about to revive their operations and income streams, just when the pandemic came about. Sectors like textiles, auto ancillary business, jewellery segment were already in distressed in January. A 30-day overdue rules will lead to many companies being left out of the new restructuring window,” said an official of a state-owned bank.
Banks will have to work on their own board-approved policies to restructure loans of individuals under the overall framework to be provided by the Kamath-led panel. “As it stands now, the moratorium on term loans for corporates and individuals may not be extended as the restructuring is being allowed. There are suggestions from banks to allow restructuring for loans that are overdue till at least 60 days. The RBI will be looking into all these areas,” a senior government official said.
The outer limit of extending the repayment terms by two years for corporate as well as individual loans is unlikely to be extended.
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