Mumbai: Restructuring of loans may happen only after the lockdown ends as it is only then that banks will get an idea of the cash flows of various borrowers. Meanwhile, the Reserve Bank of India (RBI) granted a host of regulatory relaxations to banks to help them tide over the crisis.
The RBI increased a bank’s group exposure limit to 30% from 25% of its capital base, thereby enabling it to lend more to large business houses, including public sector enterprises. The central bank also said that lenders will get more time to resolve defaults as the 180-day moratorium period will not be part of the 210-day deadline for resolving defaults. If bad loans are not resolved in seven months, banks need to make additional provisions out of their profits.
Lenders across the board said that the RBI measures give all parties a breather. Businesses can focus on production and sales without worrying about repayments, banks can start assessing the prospects for each borrower and the RBI gets time to formulate a restructuring scheme that will not result in future bad loans. Sectors like aviation, hospitality and tourism-related businesses are seen as most stressed on account of the lockdown.
Lenders say that a negative GDP growth would get translated into non-performing assets as incomes of individuals and businesses get hit. The lowering of interest rates would ease the burden.
“The entire effort of the government and the RBI is to revive growth in the economy and, at the same time, recognise the difficulties that industries are facing. All the measures around reduction in repo rate, moratorium and increase in the limit on group exposures will be helpful in revival of the economy,” SBI chairman Rajnish Kumar said. “Right now, the moratorium will take care of the situation around the cash flow disruptions. I would not be obsessed with one-time restructuring at this particular point when we have time till August 31,” he said.
While the RBI has allowed banks to extend the moratorium, it is not clear how they will respond to NBFCs. According to Crisil director Krishnan Sitaraman, liquidity challenges for NBFCs, housing finance companies and microfinance institutions may get accentuated if banks don’t extend moratorium to them. The finance companies will have to provide an extended moratorium to their borrowers, which could lead to a mismatch in cash flows. “Further, it is not expected that they will get any moratorium on their capital market debt repayments. The recent announcements made on the guarantee and partial guarantee schemes will alleviate the concerns somewhat, but what will be key is the extent to which banks will extend moratorium to NBFCs/ HFCs/ MFIs,” he said.
According to Krishnan, while RBI norms will provide an interim relief on classification of NPAs, the macro challenges that the economy is facing this fiscal and its impact on fundamental credit quality of borrowers will manifest in an increase in bad loans.