Moratorium window over: Banks plan framework for retail loan restructuring

For recast of corporate loans, the modalities will be worked out after an expert panel, led by KV Kamath, submits its report to the RBI.

Meanwhile, the RBI said on a year-on-year (Y-o-Y) basis, non-food bank credit growth at 6.7 per cent in July 2020 was the same as in June 2020 but lower than the growth of 11.4 per cent in July 2019. (File)

Written by: Sunny Verma

3 min readNew DelhiSep 2, 2020 10:52 AM IST First published on: Sep 2, 2020 at 12:58 AM IST

With the moratorium facility for term loans having ended on Monday, banks are working to put in place board-approved polices for restructuring of retail loans that are facing stress. For recast of corporate loans, the modalities will be worked out after an expert panel, led by KV Kamath, submits its report to the Reserve Bank of India (RBI). While the actual design of the restructuring facility will be soon released by the banks, the RBI’s proposal on one-time window allows banks the option to extend moratorium by two years, subject to their assessment.

Sources said state-owned banks are likely to put in place a uniform framework for restructuring of retail loans, while a framework for corporate loans will be guided by final guidelines from the RBI. This is expected after a meeting, which will be taken by Finance Minister Nirmala Sitharaman on Thursday with heads of banks and NBFCs to review “the implementation of the resolution framework for Covid-19 related stress in bank loans.” “The review will focus on enabling businesses and households to avail of the revival framework on the basis of viability, necessary steps like finalising bank policies and identifying borrowers, and discussing issues that require addressing for smooth and speedy implementation,” according to the Finance Ministry.

As per the RBI’s August 6 circular on Resolution Framework for Covid-19-related Stress, as part of resolution for retail loans, banks may also look to grant additional moratorium of two years. “The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan,” the RBI said.

Restructuring will be better for both banks and the borrowers as it will enable them to extend the term of the loans by two years without putting undue burden on higher equated monthly instalments (EMIs) on the customers, according to sources in the banking industry. “We have started identifying the accounts which may require restructuring facility for retail loans. Options will be given to customers based on the framework adopted by our Board and rules that RBI may put in place,” a banker with a state-owned bank said.

As of now, only those companies and individuals whose loans 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.

RBI Governor Shaktikanta Das said on August 21 the Kamath committee on business loan resolution would submit its recommendations in September first week and the central bank will soon release its final guidelines by September 6. Das had said banks can start the process on their own and prepare the resolution plan by the end of this month. “Bank moratorium was a temporary solution to respond to coronavirus lockdown but resolution framework is a permanent solution.”