Only loan accounts that are in default for less than 30 days as on March 1, 2020, are eligible for one-time restructuring. Because the regulator and the banks now await for the KV Kamath-led panel to return out with the modalities of restructuring of loans for both corporates and individuals, sources within the government and industry say that the Reserve Bank of India (RBI) might not extend the moratorium period for loans, that comes to an end on August 31.
Banks may put in place board-approved policies to deal with stressed loans to individuals. Besides, while there are suggestions that the present proposal of allowing restructuring for loans that are overdue for up to 30 days should be extended for people who are overdue for a minimum of 60 days, a senior government official said “RBI is going to be looking into this area”.
Pointing out that the limit of extending the repayment of loans terms by two years for corporate as well as personal loans is unlikely to be extended, the official said that “RBI will look for suggestions on giving restructuring for loans that are overdue until a minimum of 60 days, as against this proposal of 30 days.”
Bankers say that when the restructuring of loans is permitted, it’s not wise to continue with the moratorium.”While the moratorium doesn’t permit banks to tinker with the tenure and results in an increase in EMI after the end of the moratorium period, the reframing of structure will allow by banks to increase the terms of the loan by up to 2 years, thereby introducing the monthly EMI related things come down for the borrowers,” said a senior official with a bank.
For corporate borrowers, banks can request for a resolution plan until December 31, 2020, and implement it until June 30, 2021. Such loan accounts should be standard until the date of invocation. Companies that were already in default for quite 30 days as on March 1, however, cannot avail of this facility. Sources said this might affect revival plans of companies that were about to regain profitability but got hit when the lockdown was imposed.
“There is a genuine issue. Many companies were about to reframe their operations and income streams, just when the COVID-19 came about. Sectors like textiles, auto ancillary business, and jewelry segment having low demand in January. The 30-day overdue protocol will make other companies being left out of the new reframing window,” said an official of a state-owned bank.
Banks have to work the basis of board-approved policies to reframed loans of customers under the overall framework, to be provided by the Kamath-led panel. “As it stays for the moratorium on term loans for corporates and individuals might not be extended as the reframing is being allowed. There are many suggestions from banks to allow restructuring for loans that are overdue to a minimum of 60 days. The RBI is going to be looking into these areas,” a senior government official said.
