FM asks banks to craft recast plans by 15 September

NEW DELHI: The Union government on Thursday asked banks to prepare debt recast plans for pandemic-hit businesses by 15 September, with the six-month loan moratorium drawing to an end. In a virtual meeting with banks and non-bank lenders, finance minister Nirmala Sitharaman said the distress caused by the pandemic should not impact lenders’ assessment of borrowers’ creditworthiness.

“During her interaction, the finance minister focused on lenders immediately putting in place board-approved policies for resolution, identifying eligible borrowers and reaching out to them. Quick implementation of a sustained resolution plan by lenders for the revival of every viable business,” a finance ministry statement said.

Also read: Loan moratorium: Banks shouldn't declare accounts as NPAs till further order, says SC

In March, the Reserve Bank of India (RBI) permitted a moratorium on the repayment of term loans to provide relief to borrowers for three months. This was further extended by three months due to an extended lockdown and a steady rise in the number of covid-19 cases.

Before the end of the moratorium, RBI allowed a one-time loan recast without tagging loans as non-performing assets (NPA). Banks have already started work on identifying eligible borrowers for the same.

“Lenders assured they are ready with resolution policies, have started the process of identifying and reaching out to eligible borrowers and that they will comply with the timelines stipulated by RBI,” the finance ministry note added.

The meeting comes ahead of the K.V. Kamath committee’s recommendations on the parameters for restructuring loans hit by the covid-19 crisis. Last month, RBI governor Shaktikanta Das said a resolution framework for all covid-19 related stressed accounts will be finalized by 6 September.

“The finance ministry and RBI are on the same page and have asked banks’ board to quickly approve the resolution plan. Banks will also have a chance to give relief to borrowers from the sectors (tourism, hotels, logistics) that have been hit the most by the pandemic. This will include a sector perspective on the resolution plan, which will help these businesses come back to their feet,” said Kuntal Sur, partner at PwC.

Similarly, instant loan service provider MoneyTap said lenders need to treat different borrower segments differently. “FM’s appeal and advice are to try and extend restructuring schemes and additional credit to deserving borrowers, such that they have the chance to revive cash flows while maintaining a good credit track record,” MoneyTap co-founder Kunal Varma said.