The Reserve Bank of India (RBI) on Monday announced its report on loan restructuring as part of the Resolution Framework for COVID-19 Related Stress.
Resolution Plan For Borrowers
As prior to this, the Finance Minister Nirmala Sitharaman had asked banks and non-banking financial companies (NBFCs) to suggest a loan restructuring scheme for companies to fight COVID-19-related stress.
The committee has identified 26 sectors that lending institutions need to consider while determining a resolution plan for borrowers.
It is noteworthy here that the resolution under this framework would be extended only to borrowers having stress on account of COVID-19.
According to the reports, “Only those borrowers which were classified as standard and with arrears less than 30 days as at March 1, 2020 are eligible under the Framework.”
Apart from that, the committee also suggested adopting a graded approach based on the severity of the coronavirus pandemic in a sector.
Who Will Get Benefited By This Plan?
The 26 sectors which will be considered for this resolution plan includes construction, power, iron and steel manufacturing, real estate, roads, trading wholesale, chemicals, textiles, consumer durables/FMCG, pharma, non-ferrous metals, logistics, gems & jewelry, cement, auto components, hotels, plastic products manufacturing, mining, automobile manufacturing, auto dealership, aviation, sugar, port and port services, building materials, shipping and corporate retail outlets.
Below is the list for sectors that are selected for resolution by the committee.
Image Source – business-standard.com
The banks could extend the loan moratorium by three, six, or even 12 months under one-time restructuring, said Shaktikanta Das, the RBI Governor.
The main goal behind granting the moratorium is to ease the hardships faced by the borrowers during the pandemic.
Initially, the RBI had allowed lenders to grant a loan moratorium for three months on equated monthly installments (EMIs) falling due between March 1 and May 31, 2020.
Afterworld, they had extended this for another three months until August 31.
Apart from this, RBI had also permitted lenders a one-time restructuring of loans without classifying these as non-performing assets to manage the financial stress.
According to the general guidelines in the committee report, the residual tenor of the loan may be extended by a maximum of 2 years with or without payment moratorium.
In case of the moratorium period granted, it shall come into force immediately upon implementation of the RP.
After this announcement, around Rs 210,000 crore (1.9 percent of banking credit) of non-corporate loans is expected to undergo a restructuring.
Otherwise, it would have been slipped into the non-performing asset category as per the India Ratings report.