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Photo: Mint
Photo: Mint

RBI’s one-time loan recast move gives India Inc a lifeline

  • The plan will enable lenders to implement a resolution framework without ownership change
  • Key sectors, such as MSMEs, which are facing financial stress, are poised to benefit, say experts

MUMBAI : India Inc. on Thursday welcomed the Reserve Bank of India’s (RBI’s) move allowing a one-time loan restructuring for companies under stress following the covid-19 outbreak, as it would help them, and small businesses, especially, to navigate the tough times without diluting promoter stake or losing control of the business. Besides, industry representatives said that the central bank’s move to ease the norms to invest in debt mutual funds will also incentivise banks to lend more to corporates through bonds, something that had stalled in the wake of covid-19.

“Sectors that are highly stressed due to the impact of covid-19 are in dire need of such restructuring," said Uday Kotak, president, Confederation of Indian Industry.

“The restructuring of MSME accounts will provide the necessary relief to the sector, which has experienced one of the most severe impact resulting from the conditions of lockdown, containment, reverse migration, supply chain and trade choking due to covid-19," Kotak added.

Earlier in the day, while announcing the relief measures, RBI governor Shaktikanta Das, said: “It has been decided to provide a window under the 7 June prudential framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures—without change in ownership, while classifying such exposures as standard assets, subject to specified conditions."

Key sectors, such as micro, small and medium enterprises (MSMEs), hospitality, aviation, retail, real estate and auto, which are facing liquidity crunch, will benefit from the move. Over the past five months, industry bodies had made several submissions to RBI to highlight the situation and the need for addressing mounting debt.

“The current retail sales have been at around 40% of last year. Loan restructuring will help retail get back on its feet to fight the economic crisis that has fallen on this sector," said Kumar Rajagopalan, chief executive, Retailers Association of India.

Loan restructuring will also help the banking sector, which has huge exposure to the stressed sectors and, if the companies fail to get back on their feet, a significant portion of the loans would turn into non-performing assets.

This restructuring plan will also enable lenders to implement a resolution plan in respect of eligible corporate debtors without a change in ownership, while classifying such exposures as standard, if they meet certain conditions.

According to Ajay Shaw, Partner, DSK Legal, the restructuring is conditional to ensure only genuine cases get the benefit.

“These conditions have been stipulated in order to ensure that window is available to only pandemic-related stress," said Shaw.jayshree.pyasi@livemint.com

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