RBI To Allow One-Time Loan Recast In Construction, Real Estate, Tourism And Aviation

With banks pushing for a one-time restructuring of loans, the Reserve Bank of India (RBI) may provide this leeway for select stressed sectors. Sectors such as tourism, hospitality and real estate have been seeking this relief to tide over the business slump resulting from effects of COVID-19 pandemic induced economic downturn.

A senior official with a leading financial services firm said restructuring of genuine cases of non-performing loans is the need of the hour, as it will allow the system to declog and start functioning. Stating that sectors such as real estate, hospitality are in dire need of the same, he called for RBI to have a sincere look into the matter.

Citing cases where just a Rs 50-100 crore additional funding may revive the project and the loan, he said the housing finance companies (HFCs), non-banking financial companies (NBFCs) and banks and not able to provide that additional funding as that too will get added to the non-performing asset (NPA) of that particular company, “the RBI needs to allow restructuring of non-performing loans and then the banks and financial institutions can analyse the cases and pick the ones that are feasible to revive. But until the RBI allows it, it is not possible to clean up,” he said.

He said in most of the cases, the interest is only getting accumulated and there is no resolution in sight. A senior government official said the discussions have been held with the RBI and “there is emphasis on the issue that sector specific restructuring may be needed.” Finance Ministry officials did not reply to queries seeking comments for the story.

According to the RBI’s systemic risk survey, the top three sectors identified as adversely affected by the COVID-19 pandemic are: Tourism and hospitality, construction and real estate and aviation. Their prospects of recovery in the next six months appear bleak, the RBI says.

Though bankers are not in favour of continuing the moratorium, they are not sure about the need for an across-the-board loan restructuring scheme which was misused by corporates in the past. “Corporates had misused loan restructuring till about six years back. Bad loans were hidden under the carpet using loan recast schemes … and helpful banks evergreened these loans by sanctioning fresh loans. The asset quality review in 2015 threw out a lot of skeletons from the cupboards of banks and corporates. The RBI will have to ensure that this doesn’t happen again,” said a banking source.

SBI Chairman Rajnish Kumar had already gone on record saying, “in my view, moratorium (extension) is not required. (At least) an across the board moratorium is not needed. Some sectors may need relief, that’s a call the RBI will have to make.” However, HDFC Chairman Deepak Parekh had said it is worth considering (loan recast scheme) to save future problems. In March, to provide relief to borrowers whose cash flows have been hurt by the Covid pandemic, the central bank had allowed a deferment of loan repayments for 3 months initially and later extended it till August 31.

India Inc has been pushing for extension of the moratorium further or a one-time loan restructuring plan, which would allow borrowers to renegotiate loan terms to extend the repayment cycle and cut loan rates. The RBI had last week warned against a spike in NPAs to 14.7 per cent of advances in a worst case scenario in the current fiscal.

The RBI has already hinted that moratorium may not be extended.

(Source: Indian Express)