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RBI governor Shaktikanta Das,
RBI governor Shaktikanta Das,

RBI governor's address at 10AM: Five things to watch out for

  • Markets are hoping for an extension of the loan moratorium beyond 1 June
  • Banks have urged the RBI to allow a one-time recast of stressed assets in the wake of the covid-19 pandemic

MUMBAI: Reserve Bank of India (RBI) governor Shaktikanta Das will hold a briefing on Friday at 10 am, his third since the lockdown began on 25 March. Lenders and the Indian industry are waiting for the likely steps Das may announce to mitigate the impact of the lockdown.

Mint takes a look at the five key things to watch out for in the address.

Extension of loan moratorium

Led by Indian Banks’ Association (IBA), lenders have sought an extension of the loan moratorium allowed by the central bank. With lockdown having been extended again, this time till 31 May, bankers believe that borrowers will not be able to repay immediately as soon as the moratorium ends on 1 June and therefore an extension would help them tide over the crisis. According to banks that have declared their March quarter earnings, more than half of their borrowers, on an average, have opted for deferment. The number is also quite high among borrowers of non-bank lenders.

One-time loan recast

Banks have requested the RBI to allow a one-time recast of stressed assets in the wake of the covid-19 pandemic and the havoc it has caused to businesses, small and large. The loan recast proposal has 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. And for those 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.

Relaxations in NPA classification norms

Another request by banks was to allow a change in the asset classifications norms of RBI, albeit for FY21. Currently, an asset is classified as bad when repayments are overdue by more than 90 days. Banks have requested the RBI to allow its extension to 180 days and gradually bring it down to the original 90-day period. This will ease repayment pressure on borrowers and also allow banks some breathing space with regard to bad loans.

Commentary on flow of credit

The governor is expected to speak on the flow of credit to various segments of the economy and announce measures to revive it. India’s outstanding bank loans shrank during the lockdown despite a massive liquidity injection by the central bank to spur credit growth, indicating demand for loans is ebbing as the pandemic leaves a haze of uncertainty about the future. Total outstanding non-food credit shrank by 1.36 trillion, or 1.32%, to 101.83 trillion on 8 May from 27 March, data from the Reserve Bank of India (RBI) showed.

SPV for liquidity to non-bank lenders

Das is also expected to talk about the special purpose vehicle (SPV) that will provide liquidity support to non-bank financiers. As per the structure, the RBI will buy government-backed securities issued by the SPV and the money will be used to buy investment-grade securities of non-bank lenders. Meanwhile, in a letter sent to the finance minister on Wednesday, Finance Industry Development Council (FIDC), the representative body of non-banking finance companies (NBFCs), sought changes to the three liquidity schemes - 30,000 crore liquidity support scheme, 45,000 crore partial credit guarantee (PCG) scheme and 3 trillion guaranteed loans for micro, small and medium enterprises (MSMEs).

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