RBI remains silent on one-time loan recast and 180-day NPA recognition

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Published: May 23, 2020 2:10:13 AM

Friday’s regulatory announcements turned out to be bittersweet for banks and industry as the Reserve Bank of India (RBI) granted an extension of the loan moratorium while ignoring requests for a one-time restructuring of stressed assets without the bad-loan tag.

There was also no mention of a proposal by banks to increase the time period for recognising a non performing asset (NPA) to 180 days from the existing 90 days after the due date.There was also no mention of a proposal by banks to increase the time period for recognising a non performing asset (NPA) to 180 days from the existing 90 days after the due date.

Friday’s regulatory announcements turned out to be bittersweet for banks and industry as the Reserve Bank of India (RBI) granted an extension of the loan moratorium while ignoring requests for a one-time restructuring of stressed assets without the bad-loan tag.

There was also no mention of a proposal by banks to increase the time period for recognising a non performing asset (NPA) to 180 days from the existing 90 days after the due date.

Both these regulatory relaxations were being seen as crucial tools to help deal with stressed building up in the banking system after the government announced a suspension of insolvency proceedings for a year. The regulator effectively dashed such hopes on Friday, leaving lenders to their own devices to resolve stress.

Bankers tried to put up a brave front after the RBI governor’s statement. Asked about the lack of any mention of the one-time recast proposal, Rajnish Kumar, chairman, State Bank of India (SBI), said, “our tendency has become that whatever has been given, just take it and ignore it and then start talking about what has not been done.” Incidentally, Kumar also chairs the Indian Banks’ Association (IBA), which had formally asked for the one-time restructuring breather in the first place.

He added that the proposed recast scheme requires “deeper analysis” and it will become relevant for an enterprise which has incurred losses. “I would not be obsessed with one-time recast at this particular point of time when we still have time up to August 31,” Kumar said, adding, “It will depend on how various sectors of the economy respond post lifting of lockdown in a phased manner. We will have to assess the need and if there is a need for one-time restructuring, we can still do it under the June 7 circular.” Of course, this would mean recognising the restructured account as an NPA and providing for it appropriately.

Others were more forthright about what the regulator could have done differently. Padmaja Chunduru, MD & CEO, Indian Bank, said conversion of interest on working capital (WC) loans for the moratorium period into term loans eases repayment for borrowers, but the time given may turn out to be insufficient. “The time period for repayment of that component could have been longer than just seven months,” she said.

Sanjay Chamria, VC & MD, Magma Fincorp, said, “The transmission of the interest rate reductions and the liquidity release into the system for NBFCs and particularly for small and medium NBFCs has not been successful. In my opinion, the RBI could have also provided a one-time restructuring of existing loan accounts to provide repayment options, based on the cash flows of the customers. This would have ensured minimum disruption in the liquidity situation of MSMEs and for a large number of individual customers too.”

Industry bodies, too, stressed on the importance of this measure. “Another move the RBI should consider is to allow one-time restructuring of loans to relieve stressed businesses,” said Chandrajit Banerjee, director general, CII, while lauding the other measures announced by the central bank.

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