Opinion | Rejig debt with care1 min read . Updated: 06 Aug 2020, 09:32 PM IST
RBI’s declaration of forbearance is good, but its new panel should weigh its generosity carefully.
The Reserve Bank of India (RBI) on Thursday allowed a one-time recasting of loans, without being classified as dud, on the condition that lenders set aside 10% extra provision to cover defaults that may arise from such accounts. This could help a wide range of borrowers under covid-caused financial stress, from companies big and small to individuals. RBI also decided to form an expert panel that would suggest workable ways to restructure such loans.
This lifeline to borrowers comes three weeks before the corona moratorium on repayments draws to a close. Availers of the scheme would have had huge bills to pay, not just by way of the principal to be returned, but also interest charges piled up over the deferral period. Without easier repayment terms, many would’ve gone bust under our bankruptcy norms. India’s insolvency code, though, remains suspended for the time being. The economy can’t afford a rash of corona-driven bankruptcies. But this doesn’t mean there’ll never be a moment of reckoning. RBI’s declaration of forbearance is good, but its new panel should weigh its generosity carefully. It should not set our banks up for a bad-loan crisis later on.