The Reserve Bank of India’s (RBI) extension on Friday of the ongoing loan moratorium by another three months will take care of cash-flow disruptions for borrowers despite the absence of a one-time debt recast relief, said Rajnish Kumar, chairman, State Bank of India (SBI).
Kumar’s statement came soon after RBI governor Shaktikanta Das announced a 40-basis point (bps) repo rate cut and extended several regulatory measures in the wake of the pandemic. The moratorium is being further extended from 1 June to 31 August, in view of the extension of the lockdown and continuing disruptions, Das said. The earlier moratorium ends on 31 May.
“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," Kumar said when asked about the RBI not heeding lenders’ request for a one-time debt recast. The Indian Banks’ Association (IBA), of which Kumar is the chairman, had sought a one-time debt restructuring relief.
The moratorium itself will take care of cash-flow disruptions, now that there is time till 31 August, Kumar said.
“When we talk about one-time restructuring, 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. If borrowers face cash-flow problems even after 31 August, banks will have to deal with the situation, he said.
“I would not be obsessed with a one-time recast at this point of time when we still have time up to 31 August. It will depend on how various sectors of the economy respond post the lifting of the 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.
RBI’s 7 June 2019 circular on stressed assets allows banks to do a debt recast within six months of the review period, he said. The circular also allows borrowers to be referred to the bankruptcy tribunal for resolution.
According to the circular, a 30-day review period begins after a borrower defaults on his repayments. However, the government has recently said there will be 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 won’t be able to service the debt in the long run or the losses are such that a recast has to be done, a recast can be done today," he said.
The loan recast proposal sent by IBA had two parts. 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 the resolution of stressed assets. At present, all debt recasts are downgraded to the non-performing asset (NPA) category and banks have requested RBI to relax this criterion for the time being.
The RBI on Friday also permitted repayments of the accrued interest in tranches till March 2021.
Kumar said that interest on working capital loans will be recoverable in instalments starting from September.