Finance minister Nirmala Sitharaman on Friday hinted at a possible one-time restructuring of loans to soften the Covid-19 blow, saying her ministry is “actively engaged” with the central bank on the succour that has been asked for by some businesses and lenders.
“The focus is on restructuring. Finance ministry is actively engaged with RBI on this. In principle, the idea that there may be a restructuring required, is well taken,” Ficci said in a tweet, quoting the finance minister at its event.
Sitharaman also indicated some kind of relief for the hospitality sector that has been among the worst-hit by the pandemic. “I fully understand the requirements of the hospitality sector on extension of the (repayment) moratorium or restructuring. We are working with RBI on this,” she said.
With around a half of the Rs 102.5 lakh crore outstanding non-food loans under moratorium, the RBI is weighing between extending the moratorium beyond August and allowing a one-time restructuring.
On Monday, speaking at a webinar in which RBI governor Shaktikanta Das was present, HDFC chairman Deepak Parekh and CII president and Kotak Mahindra Bank managing director Uday Kotak made a pitch for a one-time loan restructuring programme to address a potential spike in stress in banking. However, Das remained non-committal but said he “noted” the proposals. In fact, Parekh opposed any further extension of the moratorium beyond August, on ground it would hit lenders.
FE had earlier reported that a final call could be taken in late August or early September, once the repayment moratorium for individuals and companies ends (on August 30) and June quarter results of all banks are in. By that time, authorities will also be able to better gauge the state of demand in the economy and decide on further demand-side fiscal stimulus.
However, the central bank was also mindful that the relief should be such that it must not lead to unintended consequences in terms of a fresh and unprecedented bad loan crisis, sources had said earlier. After the global financial crisis in 2008, RBI had announced a one-time loan recast plan to ease the pain but some analysts had blamed such a move for worsening a bad loan pile-up subsequently.
In its Financial Stability Report, the RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021. However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.
Non-food credit growth remained subdued at just 6.8% as of May 22 from as much as 11.4% a year before, thanks to risk aversion among bankers and weak demand. In a report on Wednesday, Crisil Research said assets under management of NBFCs are expected to de-grow 1-3% in the current fiscal as fresh disbursements drop sharply. This would be the first such de-growth in two decades.
Highlighting the Rs 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS), announced as part of the Rs 21-lakh-crore relief package, Sitharaman said banks cannot refuse credit to MSMEs covered under the scheme. “If refused, such instances must be reported. I will look into it,” she assured the businesses.
The government has pledged full guarantee for up to 20% additional, collateral-free working capital loans under the ECLGS. As of July 23, loans of as much as Rs 1,30,492 crore were sanctioned by banks, of which Rs 82,065 crore was already disbursed.
As India intends to review its free trade agreements with host of partners, such as Asean, Japan, Malaysia and South Korea, the minister sought to highlight the need for reciprocity. “Reciprocal arrangements are being asked with the countries with which we have opened up our markets. Reciprocity is a very critical point in our trade negotiations,” she said. India believes its FTAs with certain partners haven’t generally contributed to its export opportunities; rather its trade deficit with them has only widened. She also said the government is working on development finance institutions. “What shape it will take, we will know shortly”.