A week after Finance Minister Nirmala Sitharaman asked banks and non-banking financial companies (NBFCs) to roll out a loan restructuring scheme for companies facing Covid-19-related stress, the Reserve Bank of India (RBI) on Monday announced the financial parameters for the resolution plans under the scheme.
The committee has made recommendations for 26 sectors that may be factored by lending institutions while finalizing loan resolution plans. The committee said banks could adopt a graded approach based on the severity of the coronavirus pandemic in a sector.
The scheme used to be announced to bail out companies and organisations hit by the coronavirus and follow-up lockdowns. The central bank’s announcement is based on the recommendations of the K V Kamath committee, which submitted its outline final week.
In his interview with CNBC-Awaaz, RBI Governor Shaktikanta Das had said that banks could extend the loan moratorium by three, six, or even 12 months under one-time restructuring. The moratorium used to be first of all granted to ease the hardships faced by the borrowers all through the pandemic.
The RBI had first of all allowed lenders to grant a loan moratorium for three months on equated monthly instalments (EMIs) falling due between March 1 and May 31, 2020. Later, it had extended this for another three months until August 31. To administer the financial stress amid the lockdown, RBI had also permitted lenders a one-time restructuring of loans without classifying these as non-performing assets.
A high proportion of debt from the real estate, airlines, hotels, and other consumer discretionary sectors had been restructured, the largest contribution had been from infrastructure, power, and construction. The restructuring quantum from the corporate sector in FY21 could range between 3 per cent and 5.8 per cent of the banking credit, amounting to Rs 3.3-6.3 trillion, India Ratings said in a outline. Even stressed assets that might not slip in the close term could be restructured, as Covid-19 would have aggravated stress.
No less than Rs 210,000 crore (1.9 per cent of banking credit) of non-corporate loans is likely to undergo restructuring after the announcement, which would have differently slipped into the non-performing asset category, India Ratings said in its outline.
The finance minister had earlier urged lenders to immediately put in place a board-approved policy for resolution at the review assembly with heads of scheduled commercial banks and NBFCs through video conferencing. She had said to lenders that borrowers should be provided beef up and Covid-19-related misery should not affect lenders’ assessment of their creditworthiness as and when the moratorium on loan repayments used to be lifted.
Sectors selected for resolution by the committee: