RBI Allows Loan Restructuring, Only For These Businesses; Loan Moratorium Rejected This Time

RBI has restarted a one time scheme  in which retailers and small businesses can restructure their loans without risk of downgrading to non performing category.

New Relief Scheme For Worsening Pandemic

The move will serve as support for borrowers impacted by the ongoing 2nd wave of the pandemic

Shaktikanta Das, Governor, RBI, stated that given the current pandemic situation, new uncertainties have risen which affect the economic recovery that was just showing its signs. 

In such an environment the most vulnerable are the categories of individual, small business and MSME borrowers. 

RBI had already started work on the scheme following bankers who demanded further relief. 

Scheme Provisions

It will allow banks to use their floating or countercyclical provisions it possesses as of Dec 31, 2020 to create specific loan loss provisions till Mar 31, 2022.

Also as a one time measure lenders can rework capital limits for small businesses who restructured their dues in 2020. 

Borrowers can restructure their loan in terms of moratorium and payment rescheduling if the same is not overdue by more than 30 days

Under the scheme loan tenor is extendable by 2 years and also a 2 year moratorium

Under the newly announced scheme banks get more time and a customised manner in which to restructure their repayment terms. 

Eligibility

Those eligible must have outstanding dues of upto Rs 25 cr, and must be ‘standard’ classified as of March 31, 2021

Those ineligible include those who have availed relief from previous restructuring schemes including the one that was announced in 2020

The scheme will have to be used within 90 days if invoked by Sept 30 

Individuals , small and medium enterprises will be eligible to extend the time to repay their loans along with a moratorium of upto 2 years.

SBI’s Take

This time around will be a more complex affair since more borrowers are expected to take up the scheme’s benefits, says PN Prasad, former deputy managing director, State Bank of India

As compared to last year the number will be more since last year there were other support mechanisms to avail. 

Each borrower has different needs and banks will have to collaborate with them based on those. 

Since MSMEs have already gone through several rounds of restructuring, those eligible for the present support measures may be fewer. 

Moody’s Take

Moody’s has called the measure milder as opposed to a blanket moratorium as it happened last year. 

It expects the proportion of restructured loans to be lower.

It further added that the fact that this measure had to be implemented shows the “reemergence of downside risks to banks’ asset quality”.

Scheme Advantages

Sunil Mehta, chief executive, Indian Banks’ Association opined that the Rs 25 cr limit of restructuring loans should cover a wide group of borrowers.

This also addresses the localised nature of financial stress since not all states have had lockdowns. 

Hence some borrowers have not had the same financial impact on their businesses so banks can redirect their focus on those that do require support. 

Mehta also says that a blanket moratorium would not have been of much help to borrowers since it would have been a short term measure. 

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