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MUMBAI : The Reserve Bank of India’s latest debt restructuring scheme announced on Wednesday is likely to find more takers than last year, banking industry experts said, since the absence of any blanket moratorium makes recast the only relief available.

Besides, unlike 2020 when there was little worry about a devastating second wave, India now expects the third onslaught of covid; so, borrowers are expected to be cautious and make use of the recast benefit, experts said. Interestingly, RBI also allowed lenders to tweak existing recast agreements under the old window to allow an extension of the moratorium period.

A simple loan moratorium would have provided support for a shorter period, while the restructuring exercise would enable borrowers to better plan cash flows, Saurabh Bhalerao, associate director of BFSI research at Care Ratings, said in a report on 5 May. BFSI stands for banking, financial services and insurance.

Bhalerao said fewer borrowers utilized the restructuring schemes last year, primarily due to the presence of other liquidity-support measures. “Given the challenging economic conditions (this year), more borrowers may avail of the schemes."

The last round of debt recast under a special window ended on 31 December and banks and non-banking financial companies (NBFCs) have been requesting RBI for another round of benefits. The second wave has been more challenging, with mutant varieties of the virus wreaking havoc. The lack of timely availability of medical-grade oxygen and medication have aggravated the problem.

Recasts under the new window must be invoked by 30 September, and banks and non-bank financiers will get an additional 90 days to implement the plan, RBI said. The resolution process will be considered invoked when the lender and the borrower agree to proceed and finalize a resolution plan. Once invoked, borrowers will also be eligible for additional loans, allowing some interim relief.

There is no restructuring window for corporates this time round. Bankers said that while companies are holding up well at the moment, any prolonged lockdown will hit them as well.

“Economic activity has not been hampered so far, and corporates, therefore, do not need debt relief. However, if lockdowns are extended, it would not take much time for stress to move from retail to corporate borrowers," a senior State Bank of India official said on condition of anonymity.

Analysts said that while the extension of the debt recast window will aid borrowers and lenders alike, an elongated bad loan recognition deadline is relatively less disruptive. In November 2016, the central bank had allowed those who had borrowed up to 1 crore an additional 60 days to repay loans, thereby pushing the 90-day non-performing asset (NPA) recognition deadline. This was after the government abruptly announced the withdrawal of high-value currency notes a couple of weeks earlier.

The absence of another moratorium is a positive since it would have disrupted credit discipline, analysts at Emkay Research said in a note on 5 May. It said chances of a moratorium are low hereon as, if it was to be announced, it would have been done now.

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