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The Reserve Bank of India (RBI) may allow lenders to offer companies in stressed sectors such as aviation, automobiles and hospitality the option to pause loan repayments even after the six-month moratorium ends on 31 August, two people directly aware of the discussions said.

The banking regulator has been conducting an impact assessment of sectors and borrower segments by collating data on repayments and cash flows of borrowers since the lockdown was announced in March to get a better understanding of the challenges faced by borrowers, the people aware of the talks between RBI and the banks said on condition of anonymity.

“While it’s a foregone conclusion that the moratorium will be extended for certain segments beyond August, the fine print is still a work in progress," said one of the three people. “For starters, RBI is of the view that some sectors will continue to need support from lenders as the current economic pain is expected to linger for them."

The case for anextension
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The case for anextension

RBI governor Shaktikanta Das is trying to provide relief to struggling businesses as the coronavirus pandemic forces people to stay indoors, driving down demand for the airline and hospitality industry to a trickle.

The prolonged lockdown to contain the spread of the virus has also forced many firms to shutter operations, leaving millions of people jobless and pushing the economy toward its worst contraction since Independence.

“RBI could be looking at extending the moratorium for certain sectors like automobile, hospitality, etc.," said the second person. The loan moratorium is unlikely to be extended to individual borrowers.

An RBI spokesperson didn’t respond to an email seeking comment.

On 10 July State Bank of India chairman Rajnish Kumar had brushed aside the need for a blanket extension of the deferment benefit.

Around 29% of loans given by banks and mortgage lenders and 59% of loans by non-bank lenders were under moratorium between April and June, according to disclosures by banks and non-banking financial companies.

On a weighted-average basis, this amounted to 30.6% of loans, amounting to 28.3 trillion. Of this, the amount under moratorium could drop to 16.22 trillion by the first quarter of fiscal year 2021 as economic activity picks up.

“The real condition of the affected firms will not be known if the moratorium is extended. It is important that some of these sectors get relief," said Ashutosh Mishra, head of research, Ashika Stock Broking.

Separately, both government and RBI are considering allowing banks to restructure company loans without having to set aside funds to cover potential losses as a one-time exemption. “We are in intense engagement with RBI for a one-time restructuring of debt and finances for businesses. The process to ascertain the level of stress, whether Stress 1 or Stress 2 or NPA is underway," finance minister Nirmala Sitharaman said last month. The idea is to help businesses exit the crisis honourably, she added.

RBI was opposed to debt restructuring as banks had used it to classify restructured loans as standard accounts and set aside lower provisions against them. This practice, which incentivized restructuring rather than recognizing bad loans, came to an end in 2015 when governor Raghuram Rajan initiated an asset quality review (AQR) of banks.

During the AQR, RBI looked at the status of large accounts, which revealed a significant divergence between the reported levels of impairment and actual positions. In 2019, RBI again allowed banks and NBFCs a one-time restructuring of loans of up to 25 crore to micro, small and medium enterprises that were in default on 1 January 2019 without having to mark them as NPAs.

Banks are asking for a similar restructuring forbearance for other large accounts by exempting them from having to declare these accounts as NPAs.

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