RBI is not inclined for an extension of the scheme after 31 Aug
RBI is concerned about changes in credit behaviour it could induce among borrowers and increase the risk of loan defaults
The Reserve Bank of India will not extend the moratorium on loan repayments after it ends on 31 August, people aware of the matter said.
While an extension was under active consideration, RBI decided against it as it was concerned about changes in credit behaviour it could induce among borrowers and increase the risk of loan defaults, the people cited above said on condition of anonymity.
Initiating a one-time restructuring of stressed accounts provided a more durable solution to tackling bad loans in the long run, the people familiar with RBI’s thinking said.
On Thursday, RBI governor Shatikanta Das said that the moratorium on loans was a temporary solution in the context of the lockdown, while a resolution framework will provide durable relief to borrowers facing covid-related stress.
Bankers had also expressed their discomfort with extending the moratorium beyond the deadline. Leading bankers like Housing Development Finance Corp. chairman Deepak Parekh, SBI chairman Rajnish Kumar and Kotak Mahindra Bank MD Uday Kotak had said that some borrowers who have the ability to pay are taking advantage of the relaxation and hence, the moratorium should not be extended.
In March, RBI introduced the loan moratorium to provide relief to borrowers and enable continuity of viable businesses impacted by covid-19 pandemic. According to RBI data, nearly half of the customers accounting for around half of outstanding bank loans availed of the benefit. The central bank had initially allowed moratorium for the three months ended 31 May but later extended it till end-August.
Later, RBI allowed debt recast for both corporate and retail borrowers. Lenders can extend the repayment period by a maximum of two years, allowing respite in a situation where covid-19 has left millions jobless, curtailing their ability to repay existing debt.
RBI had also announced the constitution of an expert panel under K.V. Kamath to suggest financial parameters for resolution of stressed assets amid the crisis. The panel is expected to submit its recommendations to RBI, which will notify them along with modifications, if any, in 30 days.
Under the resolution framework, RBI has allowed conversion of any interest accrued, or to be accrued, into another credit facility, or granting of moratorium and/or rescheduling of repayments, based on an assessment of income streams of the borrower, up to two years.
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