Even as there was no direct action on the rate front, the markets buzzed at the loan restructuring scheme. For individual personal loans, the scheme runs for two years and comes with virtually no rider as against those set for corporate borrowers.
Importantly, such restructuring can be availed of even by those who had opted for the moratorium. The RBI
said the accounts had to be classified as “standard” at the time of availing of such restructuring. This shouldn’t be a problem for most because on March 27, the RBI
had told banks to extend the moratorium to all without downgrading the account or marking the individual “a defaulter”.
Governor Shaktikanta Das, in his online address, was silent on an extension of the moratorium beyond August. This means those who want to avail of a relief may have to go for restructuring.
Analysts pointed out the restructuring might impact the banks’ normal lending activities because they would be busy doing resolutions of accounts till December.
Besides, the earlier moratorium meant the interest would add back as principal, but restructuring would typically entail some relaxation on interest rates and tenure as well. The restructuring will be done specifically for cases facing Covid-19
disruption, and the accounts will be classified as “standard”, which would allow banks to give more loans if needed. The restructuring will be done in accordance with rules laid down under the June 7, 2019, framework on resolving stressed assets, but with riders. To help the RBI on financial parameters, along with sector-specific benchmark ranges for such parameters, the central bank will constitute an expert committee under the chairmanship of veteran banker and former chief of New Development Bank K V Kamath.
The Covid scheme
In the June 7 circular, the “standard” asset category could be maintained only when there was a change in ownership. But under the latest policy measures, accounts can remain standard with the same ownership. Covid-related disruptions have led to heightened financial stress for borrowers across the board, according to the RBI governor. “A large number of firms that otherwise maintain a good track record under existing promoters face the challenge of their debt burden becoming disproportionate, relative to their cash flow generation abilities,” Das said in his address.
The stress can potentially affect these companies’ long-term viability and “pose significant financial stability risks if it becomes widespread”, Das said. Micro, small, and medium enterprises (MSMEs) with a loan exposure of up to Rs 25 crore (funds and non-funds combined) can avail of the benefit of restructuring.
Industry welcomed the restructuring schemes. “Industry is encouraged by the RBI’s decision to provide a window under the prudential framework to enable lenders to implement a resolution plan in respect of their corporate exposures, with the necessary caveats in place,” said Uday Kotak, president of the Confederation of Indian Industry.
“Sectors that are highly stressed due to Covid are in dire need of such restructuring,” Kotak said. Seshagiri Rao, joint managing director and CEO of JSW Steel, said: “The measures will help industry, including steel.” While short-term pressure on companies will be mitigated, Ramesh Nair, CEO and country head (India), JLL, said “one-time restructuring would have given the much-needed respite to the real estate sector, which has been facing headwinds.”
Bankers, who otherwise were expecting a steep rise in non-performing assets (NPAs), welcomed the move.
“We welcome the fact that a new resolution framework has been extended to large corporate, SME, and personal loans with necessary safeguards in each segment,” said Rajnish Kumar, chairman of State Bank of India. Zarin Daruwala, CEO, India, Standard Chartered Bank, said: “The resolution framework should help reduce the strain on the balance sheets of companies operating in affected sectors.” Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank, said: “The one-time restructuring of corporate and personal debt, including those of MSMEs, will help alleviate the stress faced by borrowers while ensuring the soundness of the banking system and focus on credit culture.”
The facility will be for those who were not in default for more than 30 days as of March 1, 2020. Such restructuring can be sought only till December 31 this year, and implementation has to be done by March 31, 2021, for personal loans and June 30, 2021, for other exposures. Though there will be layers of conditions for companies, the rules for personal loans will be much easier, and the RBI advised banks for “early invocation in eligible cases”.
“The timelines for implementing resolution plan in the case of personal loans are assessed to be adequate since, unlike larger corporate exposures, there will not be any requirement for third-party validation by the expert committee, or by credit-rating agencies, or need for ICA (inter-creditor agreements).” “The contours of the plan may be decided based on the board-approved policies of the lenders subject to extension of the residual tenor of the loan, with or without payment moratorium, by a period not more than two years,” the RBI said.
Among other important measures, the central bank increased the loan-to-value ratio of gold loans to 90 per cent, from 75 per cent earlier. The RBIalso included start-ups in priority-sector lending, and adjusted risk weights so that banks lend to states and sectors they tend to avoid. It is opening an innovation centre to deal with technologies and improve cyber security, and planning to introduce offline retail payments using cards and mobile devices, and ordered payment system providers to come up with an online dispute resolution for digital payments.