The Loan Moratorium announced by the Reserve Bank of India on March 27, 2020, stating that all banks, Housing Finance companies and NBFC’s have been permitted to allow a suspension of 3 months on repayment of term loans outstanding on March 1,2020, due to outbreak of the corona virus around the world.
The covid –19 pandemic has caused a major breakdown in all the segments of the business leading to job loss and salary cut in many organizations. The prolonged lockdown to stop the spread of virus has forced many firms to shut their operations pushing the economy to the worst and leaving millions of people jobless. People are facing severe financial constraints due to this pandemic.
The Six-month Moratorium announced by the RBI ends on 31st August 2020. The RBI (Reserve Bank of India) may extend the moratorium beyond the month of August for some of the most stressed sectors. The RBI may allow the option to pause loan repayments even after the six-month moratorium to companies in stressed sectors such as Aviation and Hospitality. The Banking Institutions has been conducting an Impact Assessment of the sectors, and the borrowing segments by collecting data on repayments and cash flow of the borrowers since the lockdown was announced in March to get a better understanding of the challenges faced by the borrowers. Some sectors will continue to need the Moratorium support from the lenders, as the current economic pain is still continuing for them.
As the Corona Virus Pandemic forces people to stay indoors, driving down the demand for the aviation and the hospitality industry. RBI could be looking to extend the Moratorium for certain sectors like Automobile and hospitality but it is unlikely to extend the moratorium for the individual borrowers.
According to the Statement of Disclosures by the Banks and Non-banking Financial Institutions, around 29% of the loans given by the banks and mortgage lenders and 59% of the loans by non-banking lenders were under the moratorium between April and June. This amounts to 30.6% of the loans amounting to ₹28.3 trillion.
As the Economic activity picks up, the amount under moratorium could drop to ₹16.22 trillion by the first quarter of fiscal year 2021. The Government and the RBI are insisting banks to restructure the company loans without having to set aside funds to cover the potential losses as an one-time exemption. In 2019, RBI allowed NBFC’s and Banks for a one-time restructuring of loans of up to ₹25 crore to micro, small, and medium enterprises that were in default on 1st January without having to mark them as NPA’s.
