The impact of this global pandemic can be felt far and wide. It has managed to change the very essence of how the economy had functioned to date. While still in lockdown, India Inc is expecting an extension on the moratorium on payment of term loan installments for 3 more months until 31st August 2020. Government has been discussing with industry bodies and is convinced of the importance of the scheme.
There is an issue whereby some are misusing the scheme. The government is not happy with how some of the businesses are utilising this scheme to preserve their own liquidity, even though they don’t have much cash flow crisis. It is unclear as to how the government and RBI will tweak it to avoid any misuse of the scheme.
Almost 3.2 crore account holders in state-owned banks availed the moratorium on loans. In a tweet, Sitharaman’s office said that during March and April alone, the public sector banks (PSBs) sanctioned loans worth Rs 5.66 lakh crore for more than 41.81 lakh accounts, and that these borrowers belong to MSME, retail, agriculture and the corporate sectors. Loans amounting to Rs 77,833 crore have been sanctioned to NBFCs and housing finance corporations (HFCs).
One of the hardest hit is the microfinance sector, this is because of the lockdown and not to mention, about 75 per cent of the borrowers from the sector are Kirana owners, roadside vendors, workshop owners, tailors and weavers, they sought moratorium on loan repayments as they have been out of work. Although only 30 per cent of the micro loan borrowers had used moratorium in April, the ratio has jumped to about 75 per cent, this is according to the data compiled by some microfinance industry associations.
Almost 328 companies, including many famous industrial firms, have sought for moratorium on loan repayment, according to rating agency ICRA. Tata Power Renewable Energy, JSW Paints, Kalyan Jewellers, MRPL, TV Sundaram Iyengar, Centrum Financial Services, Air India Express, GMR Hyderabad Aviation SEZ, Hindustan Copper and Jindal Steel & Power are some of the companies that sought moratorium on loan repayment.
If RBI were to extend this moratorium for 3 more months, then there is a highly likely chance that banks will see more and more companies trying to avail it as the situation has become a lot worse. This extension will also assist banks as they won’t have to take any action against loan defaults and count these loans as non-performing assets (NPAs).
