Stressed by Covid-19 pandemic,banks, corporates set to pitch loan recast plan to RBI, govt

Mumbai: Banks and corporates are coming together to make a last-ditch effort to convince the government and the Reserve Bank of India (RBI) to allow a one-time restructuring of loans to tide over the stress caused by Covid-19 pandemic.In the past few days, banks and industry bodies have explored ways to strike a balance between New Delhi’s perennial fear that it could let undeserving companies have a free ride and the actual ability of most borrowers to service and repay loans amid diminished cash flow and demand.“We want to offer a plan that would entail borrowers sharing the pain with banks. In the absence of a forbearance on loan restructuring, there will be deeper stress, more job losses, and impact banks’ ability to lend more,” a senior banker told ET.The contours of the proposal which would be soon finalised are restricting back-loading of loan repayment, allowing a standstill period of six months to a year (when loans will not have to be serviced), conditions and contributions that promoters of borrowing companies will have to agree to, the extent banks will have to provide for such loans, and the maximum period by which the tenure of restructured loan can be stretched.“While a vaccine can dramatically improve the situation, it’s unlikely to be widely available before next year. At the same time, the loan tenure cannot be extended too much. The kind of restructuring that happened between 2009 and 2011 will not be permitted. So, the aim is to submit a plan that is acceptable to the government and RBI,” said another banker.After a close look at financials of the banks for the June quarter and following stress test of institutions, RBI may be better placed to take a call on the finer points of one-time restructuring proposal. 77138330Providing for Unsustainable DebtThe forbearance that banks are asking for is letting them restructure a loan without putting the tag of non-performing asset (NPA). Under existing regulations, a structured loan is categorised as NPA which curbs a borrower’s ability to raise fresh funds. Since the loan restructuring would be with the same promoter, regulatory changes would be needed.A new one-time loan restructuring (without the NPA tag) would let banks disburse fresh loans and match the repayment of the entire outstanding loan to borrower’s lower cash flow in the current business environment. Banks, in protecting their balance sheet, are also willing to provide for the ‘unsustainable debt’ — the slice of loan which a borrower cannot service with lower earnings. Lenders as well as the industry feel this is the need of the hour — particularly with senior bankers voicing the view that prolonging the moratorium beyond August could adversely impact the credit culture in the country.“The stress this time is deeper and wider compared to 2008-09. So, ideally, loans to all sectors should be restructured — and, not just the loans to select industries like hospitality and aviation. While we think RBI will come out with something, the challenge is to make rules realistic,” said another banker.

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