The Reserve Bank of India’s (RBI) extension of the ongoing moratorium by another three months will take care of cashflow disruptions for borrowers even in the absence of a one-time debt recast relief, said Rajnish Kumar, chairman, State Bank of India (SBI).
Kumar spoke to reporters soon after RBI governor Shaktikanta Das announced a 40-basis point (bps) repo rate cut and several regulatory measures in the wake of coronavirus outbreak.
Asked about the central bank not heeding lenders’ request for allowing a one-time debt recast window, Kumar said, “our tendency has become that whatever has been given, just take it and ignore it and then start talking about what has not been done."
Interestingly, Kumar is the chairman of the Indian Banks’ Association (IBA) which sought the one-time debt restructuring relief from the central bank.
Kumar said that now that there is time till 31 August, the moratorium itself will take care of cashflow disruptions.
“When we talk about the one-time restructuring, then it requires deeper analysis. The recast is required for any enterprise if they have incurred losses and then we have to work out a plan to fund those losses," said Kumar, adding that if borrowers faces cashflow problems even after 31 August, banks will have to deal with the situation.
“I would not be obsessed with one-time recast at this particular point of time when we still have time up to 31 August. It will depend on how various sector of the economy respond post lifting of lockdown in a phased manner. We will have to assess the need and if there is a need for one-time restructuring, we can still do it under the 7 June circular," said Kumar.
He added that RBI’s 7 June circular on stressed assets allows banks to do a debt recast within six months of the review period. That apart, the circular also allowed borrowers to be referred to the bankruptcy tribunal for resolution. However, the government has recently said that there will no fresh insolvency cases for up to a year now, a move that bankers have said will disrupt recoveries.
“Even now, if we know that a large unit will not be able to service the debt in the long run or the losses are such that a recast has to be done, debt recast can be done today," said Kumar.
The loan recast proposal sent by IBA had two parts to it. For loans below ₹1,500 crore, debt recasts will be done on a case to case basis, led by the lead bank. However, for loans above ₹1,500 crore, restructuring proposals will be made on the basis of RBI’s 7 June circular on resolution of stressed assets. At present, all debt recasts are downgraded to non-performing asset (NPA) category and banks have requested RBI to relax this criterion for the time being.
The RBI on Friday also not only allowed another three months of deferment on interest payments to working capital borrowers but also permitted repayments of the accrued interest in tranches till March 2021. RBI governor Das said that in view of the extension of the lockdown and continuing disruptions on account of covid-19, the moratorium is being further extended for a period of three months from 1 June to 31 August. The earlier moratorium ends on 31 May.
SBI’s Kumar said that interest on working capital loans will be recoverable in instalments starting from September.
“What we have to also recognise is that many people are servicing their interest and this is not a situation for everyone. It is only that the working capital component that needs to be serviced starting from 1 September and can be paid in instalments," said Kumar.