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Thursday, September 24, 2020

Sitharaman to lenders: Don’t let Covid distress impact borrowers’ credit scores

The lenders suggested that the current proposal to allow restructuring of loans that were overdue for up to 30 days should be extended to those that were overdue for at least 60 days.

By: ENS Economic Bureau | New Delhi | Updated: September 4, 2020 11:34:02 am
The mechanism to raise the funds to provide the compensation was the GST Compensation Fund. The mechanism was in aid of the obligation, not that the obligation was subject to the mechanism — a point conveniently ignored by the Finance Minister and her officials.

Finance Minister Nirmala Sitharaman on Thursday asked lenders to put in place their board-approved resolution policies by September 15 to enable borrowers to deal with stress in loan accounts resulting from the impact of the Covid-19 pandemic.

According to an official statement, Sitharaman told the heads of banks and NBFCs at a meeting over video link that “as and when moratorium on loan repayments is lifted, borrowers must be given support and Covid-19 related distress must not impact the lenders’ assessment of their creditworthiness.” Sources said the banks and NBFCs sought some changes in the resolution framework outlined by the Reserve Bank of India.

The lenders suggested that the current proposal to allow restructuring of loans that were overdue for up to 30 days should be extended to those that were overdue for at least 60 days.

Some lenders also suggested a relaxation in the outer limit of extending the repayment terms by two years wherever possible, depending on the residual tenure of the loan, the sources added.

As of now, 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 until December 31, 2020, and implement it until June 30, 2021.

Such loan accounts should continue to be standard till the date of invocation, the lenders suggested. “We also suggested that the provisioning amount can be somewhat lower for accounts that are restructured,” the head of an NBFC said. Most banks and non-banking financial companies (NBFCs) expect the restructured framework to be in place by the middle of this month.

The meeting focussed on quick implementation of a sustained resolution plan by lenders for revival of every viable business. The banks told the Centre they had finalised their resolution policies and started the process of identifying and reaching out to eligible borrowers. For retail loans, banks will put out their individual policies; modalities for recast of corporate loans will be worked out after an expert panel led by KV Kamath submits its report to the RBI, which will issue final guidelines.

An early restructuring of stressed accounts will also prepare banks to step up lending ahead of the festive season. The Finance Minister asked lenders to proactively respond to the needs of companies and businesses, and individual borrowers, and to spearhead the efforts for rebuilding businesses desperate for help owing to Covid-19-related distress, the government statement said.

“The government wants banks and financial institutions to push loan disbursal to businesses and individuals,” said a banker who did not wish to be named.

The Centre also reviewed implementation of various initiatives announced under the Atmanirbhar Bharat package.

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