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MUMBAI : The Reserve Bank of India (RBI) is likely to reject banks’ request to extend interest-payment relief to working-capital borrowers, as it seeks to wind down some of the pandemic-era policies amid brighter prospects for the economy, three people aware of the matter said.

As part of the covid package last year, RBI had allowed banks to convert the unpaid interest component in cash credit or overdraft facility into a fresh term loan to help stressed borrowers. The deadline to repay these loans is 31 March.

Several banks had approached the regulator in recent weeks to allow companies more time to repay such loans after borrowers complained that they were not out of the woods yet, the people cited above said, requesting anonymity.

Still stressed
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Still stressed

“The problems are not over for businesses, and many companies have asked for more time,’’ said one of the three people, a senior banker aware of the matter. “These companies have started servicing interest deferred during the moratorium, but they are unable to repay the full amount in one shot," he added.

The primary reason for the Reserve Bank’s reluctance to extend the deadline is that it has already allowed a one-time restructuring programme for stressed corporates, following the recommendations made by the K.V. Kamath committee, the people said. Banks have, however, sparingly used the option to avoid taking significant haircuts. Instead, they chose to give relief to borrowers by extending the repayment period.

The Kamath committee had selected 26 sectors that will require debt restructuring based on its analyses of financial parameters impacted by the pandemic. The committee had identified power, construction, iron and steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, mining among sectors that were eligible for debt restructuring.

RBI, in its assessment of the economy in its February bulletin, noted that economic activity is gaining steam, but private investments were still missing. The country’s economic growth momentum needs to strengthen further for sustained recovery, RBI governor Shaktikanta Das said in the minutes of the February monetary policy panel meeting.

The Indian economy expanded 0.4% in the December quarter, exiting a recession. The recovery is expected to strengthen as the country’s vaccination programme gathers steam and consumers become more confident to travel, shop and dine out. The return to economic growth was helped by the resumption of economic activity as the government lifted lockdown restrictions and boosted spending.

The ongoing vaccination programme has sparked hope that the economy will bounce back stronger in the next fiscal year, although containing a surge in new infections will be a key challenge.

“Borrowers who are tight on liquidity will face an uphill task of clearing the funded interest for six months of moratorium period by 31 March. Lenders could have sought regulatory relaxation of longer repayment for this loan much earlier as non-payment of these dues could result in a spike in non-performing loans during the next quarter," said Anil Gupta, vice-president and sector head - financial sector ratings, ICRA Ltd.

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