Contrary to expectations, the Central Board of the Reserve Bank of India (RBI) did not take up the proposal to restructure the loans of borrowers hit by COVID-19 pandemic. The board, which met through video conferencing Friday, discussed the economic scenario, impact of the RBI measures and interest rate transmission.
“The board did not discuss the loan restructuring proposal. This was the first meeting after Covid virus hit the country. It was a stock-taking meeting on how the RBI measures have worked, liquidity has improved and about transmission of interest rates,” said a top-level source. However, sources said the loan recast proposal is under the RBI’s consideration and a decision is likely to come later. On Thursday, Finance Minister Nirmala Sitharaman had said the government is in active discussion with the RBI for a one-time loan restructuring plan.
Though there’s no official word from the RBI about allowing a one-time loan restructuring proposal so far, sources said a loan recast scheme for borrowers is likely in the wake of the economic contraction and closure of thousands of units across the country.
Loan recast proposal still in the works
A loan recast scheme for borrowers is still in the works of the RBI in the wake of the economic contraction and closure of thousands of units across the country. Any decision on loan recast is likely to come only in July or in August when the loan moratorium ends. As there’s a likelihood of a spike in bad loans from September, banks and India Inc were also lobbying for NPA reclassification norms from 90 days to 180 days as a relief measure to tackle the impact of lockdown.
The source said a decision on the RBI’s surplus transfer to the government will happen only after the central bank’s financial year ends on June 30 and accounts are finalised. A decision on the surplus to be transferred to the government is likely to be decided in the next board meeting.
“Any decision on loan recast is likely to come only in July or in August when the loan moratorium ends. There’s a likelihood of a spike in bad loans from September. The loan recast proposal is before the RBI,” said a banking source.
The RBI also issued a statement saying that the meeting discussed the economy and challenges. “The board deliberated on the current economic situation and the evolving challenges posed by the pandemic,” an RBI statement said. Among others, the board also discussed the Reserve Bank’s activities during the period (July 2019-June 2020), the budget for the next accounting year July 2020 to March 2021 (aligned with the Government’s financial year), other policy and operational matters, the statement added.
“Governor and Deputy Governors briefed the board about the overall macroeconomic conditions — both domestic and global, financial sector situation and the impact of various monetary, regulatory and other measures taken by the RBI in the context of the COVID-19 pandemic,” the RBI said. Apart from Governor Shaktikanta Das, Deputy Governors BP Kanungo, MK Jain and Michael Patra and other Directors of the Central Board — Tata Sons chairman N Chandrasekaran, Dr Ashok Gulati, chairman and founder of Teamlease Services Manish Sabharwal, former AP Chief Secretary Prasanna Kumar Mohanty, Sun Pharma chief Dilip S Shanghvi, former chairman of United Western Bank Satish K Marathe, former Deputy Comptroller & Auditor General Revathy Iyer and RIS Director General Prof Sachin Chaturvedi — attended the meeting. Tarun Bajaj, Secretary, Department of Economic Affairs and Debasish Panda, Secretary, Department of Financial Services too attended. Chartered accountant S Gurumurthy did not attend.
According to banks, the RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of the 90-day norm. As of now, the June 7 circular on loan restructuring is stringent and gives little flexibility to banks.
There was also a demand for easing of bad loan recognition norm from 90 days to 180 days. However, the RBI is unlikely to agree to this proposal. Currently, loans in which the borrower fails to pay principal and/or interest charges within 90 days are classified as non-performing assets and provisioning is made accordingly.
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