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Friday, August 14, 2020

Deepak Parekh, Uday Kotak push for one-time restructuring of corporate loans

The RBI had announced a three-month moratorium on repayments in March to help borrowers tackle the impact, especially lockdown, of the Covid-19 pandemic.

Written by Sunny Verma , George Mathew | Mumbai, New Delhi | Updated: July 28, 2020 7:39:44 am
Parekh, Kotak push for one-time restructuring of corporate loans HDFC Chairman Deepak Parekh and Kotak Mahindra Bank Vice Chairman and MD Uday Kotak on Monday pushed for a one-time loan restructuring scheme to tackle the rising banking stress due to Covid-19 pandemic.

WITH ALMOST 50 per cent of borrowers and outstanding loan amounts coming under moratorium, financial sector bigwigs including HDFC Chairman Deepak Parekh and Kotak Mahindra Bank Vice Chairman and MD Uday Kotak on Monday pushed for a one-time loan restructuring scheme to tackle the rising banking stress due to Covid-19 pandemic.

After listening to RBI Governor Shaktikanta Das’s address to the CII national council on the dynamic shifts underway in the Indian economy, Parekh advised him against extending the moratorium on loan repayments since it would hurt banks and institutions. The total non-food credit as on July 3, 2020, stood at Rs 102.05 lakh crore, and half of it is under moratorium.

“Please do not extend the moratorium because we see that even people who have the ability to pay, whether individuals or corporates, are taking advantage under this moratorium and deferring payment,” Parekh told the Governor in an online CII session. “There is some talk that there will be another extension of three months… this is going to hurt us, particularly the smaller NBFCs,” he said.

Explained

Demands for succour

Half the loan outstanding is under moratorium, even as banks stare at higher NPAs by March 2021. Given the demands for succour, RBI is weighing between extending the moratorium beyond August and allowing a one-time loan restructuring programme.

The RBI had announced a three-month moratorium on repayments in March to help borrowers tackle the impact, especially lockdown, of the Covid-19 pandemic. This was extended by another three months scheduled to get over on August 31. As much as 67.9 per cent of the loan outstanding, and 80 per cent of individual customers, of PSU banks have opted for moratorium. In case of private banks, only 31.1 per cent of loan outstanding is under moratorium, according to RBI data.

“Look at this time next year… if restructuring is not given, the amount of NPAs in your own report is 12.5 per cent in March 2021, or it could even be 14.7 per cent. Now, if banks, NBFCs and microfinance, whatever, if they have these kinds of NPA restructuring like we had done in 2008… it is worth considering to save future problems,” Parekh said.

The RBI’s Financial Stability Report released last Friday projected gross NPAs to rise to 12.5 per cent of advances in the baseline scenario and 14.7 per cent in the worst-case scenario. This means NPAs are likely to go up by Rs 4 lakh-Rs 6.2 lakh crore from around Rs 8.5 lakh crore (8.5 per cent of total outstanding) in March 2020.
Earlier, welcoming the RBI Governor at the CII session, Kotak said, “There’s growing view across CII membership of the need for a one-time restructuring.”

The RBI Governor did not express any view on the moratorium or loan restructuring demand, but said he has “noted it”.

A section of India Inc, however, wants the moratorium to continue. “Given the stress in the economy and the huge pressure, I believe there will be more companies joining the NPAs list, and the moratorium extension should be seriously looked at and considered,” said Bharti Enterprises’ Vice Chairman Rakesh Bharti Mittal.

Finance Minister Nirmala Sitharaman had last month said the government was in active discussion with the RBI to offer a one-time loan restructuring plan for companies to survive the adverse impact of the pandemic. Many banks too had taken up such restructuring proposals with RBI officials, but the central bank has not yet revealed its plans.

At a banking and economics conclave in June, the country’s largest bank SBI said an extension of the loan moratorium or a one-time restructuring may not be necessary across the board. “In my view, moratorium (extension) is not required. (At least) an across the board moratorium is not needed. Some sectors may need relief, that’s a call the RBI will have to make,” SBI Chairman Rajnish Kumar had said.

The RBI allows interest waivers, reduction in rates, rollover of repayment and increase in instalments during restructuring. Such accounts do not become a non-performing asset.

Hinting that it may not be keen on extending the moratorium, the RBI on Friday said pandemic-induced regulatory dispensations in terms of the moratorium on loan instalments and deferment of interest payments may have implications for the financial health of commercial banks.

“The impact of the moratorium on private NBFCs/HFCs can be substantial, with proportion of assets under the moratorium for NBFCs averaged between 39-65 per cent based on underlying assets with approximately 50 per cent of the aggregate assets under moratorium as on end April 2020,” the RBI said. Based on the disclosures made by NBFCs and HFCs, the assets under moratorium are dominated by wholesale customers and real-estate developers, although retail portfolios in the micro-loans and auto loan segments have also been affected, it said.

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