Government in talks with RBI on loan restructuring: Sitharaman

The Indian government is working with the central bank on a possible one-time restructuring of loans due to the impact of the COVID-19 pandemic on businesses, finance minister Nirmala Sitharaman said on Friday.

“The focus is on restructuring. The finance ministry is actively engaged with the RBI (Reserve Bank of India) on this. In principle, the idea that there may be a restructuring required is well accepted,” Sitharaman said.

The RBI allowed banks and financial institutions to offer six-month moratoriums on principal and interest payments, until August 31, to all individuals and corporates holding term loans.

However, several bankers have highlighted the stress this is creating on bank balance sheets.

Earlier this week, HDFC Bank chairman Deepak Parekh in an exchange with the RBI governor said the moratorium was being partly misused and should not be continued as it would hurt banks, particularly smaller non-bank finance companies or shadow banks.

Parekh instead asked Governor Shaktikanta Das to consider a one-time restructuring scheme instead.

The RBI’s financial stability report released last week showed that at the headline level, 50% of total outstanding loans were under moratorium of as April.

The report also said bad loans could soar to almost 15% of total loans by March 2021 in a worst-case scenario, compared with 8.5% in March this year.

The RBI governor, in response to Parekh’s comments, said the central bank had not taken a decision on whether to extend the loan moratorium beyond August 31.

Sitharaman, who was addressing the National Executive Committee Meeting of the Federation of Indian Chambers of Commerce and Industry, also assured small companies covered by an emergency credit facility that they cannot be refused credit by banks. She added that the government would look into any such refusals.

She said that the finance ministry was also working with the RBI on an extension of the moratorium or restructuring of loans for the hospitality sector

“I fully understand the requirements of the hospitality sector. We are working with RBI on this,” she said.

*image source from Google

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