Page 8 - Banking Finance May 2020

RBI CORNER

remain lacklustre dragged by large in- Shaktikanta Das said. Consequently, have 180 days to restructure loans by
dustries and trade services. The com- the reverse repo rate now stands re- extending the payment period, num-
bined share of industries and trade was duced to 3.35%, while the MSF rate is ber of instalments, reducing interest
37.5 per cent in outstanding credit, down to 4.25%. To ease the financial rates or sanctioning additional credit
but growth contribution to incremen- stress on people and businesses, facilities.
tal credit just 11 per cent compared to Shaktikanta Das said that the RBI has However, in case restructuring is not
26.2 per cent last year," Care Ratings also allowed deferment of repayments worked out within 180 days and a case
said. of loans and working capital by another has not been filed under the IBC a
It added that retail loans may see a three months from June 1 to August 31 steep 20% provision is required to be
marginal contraction in credit offtake due to lockdown extension. taken.
as consumer demand moderates. "The Shaktikanta Das, while laying out the Moreover, if the loan is being restruc-
real estate sector may also face severe economic conditions prevailing in India tured without a change in promoter
stress, as individuals would delay home amid the ongoing coronavirus crisis, then the loan is considered as non-per-
purchases, which may impact housing also said that food inflation may re- forming and requires an immediate
loans. Housing loans account for more main under supply side shock, and that 15% provision.
than half of retail loans," it noted. the elevated level of inflation in pulses
Bankers say that with the suspension
is 'worrisome'. RBI's announcement of the IBC for one year the RBI will
RBI allows flexibility to follows the mega Rs 21 lakh crore eco- have to do away both with the provi-
nomic package announced by the
public sector banks on Narendra Modi government recently. sioning requirements and the 180 day
statutory branch audit In the wake of the ongoing coronavirus time frame for restructured loans.

Considering the lockdown situation pandemic, RBI has so far announced "The RBI norms will now have to be
aligned to the one year time frame.
prevailing in the country due to the various liquidity and monetary mea- Provisioning will also have to be recon-
spread of COVID-19, the Reserve Bank sures, totalling an economic value sidered because restructuring of loans
of India (RBI) has given public sector worth Rs 8 lakh crore. Meanwhile, seems to be the only option as other
FY21 GDP is expected to remain in
banks (PSBs) some flexibility to reduce options like sale to asset reconstruction
the number of branches covered under negative due to the coronavirus pan- companies and one time settlement
branch audit. demic. seem unviable at present due to want

of liquidity and capital. But we will
RBI defers loan repay- RBI may soften restructur- have to await the final notification
ments by 3 more months, ing norms after govt's IBC from the government," said CS Setty,
managing director at SBI.
eases monetary policy relaxation In February 2018, the RBI had done
The Reserve Bank of India announced The one year suspension for filing new away with different restructuring
several monetary easing measures, cases under the Insolvency and Bank- methods used by banks because of
ruptcy Code (IBC) and a default holiday
including extending moratorium on their failure to deal with stressed as-
loan repayments by another three for loans taken to deal with Covid 19 is sets over the years. Its June 2019 cir-
months, and an emergency cut in the likely to force RBI to soften its restruc- cular, gave a stringent 180 day time
policy repo rate. Governor Shaktikanta turing and provisioning norms to deal period for restructuring the failure of
Das said that the Monetary Policy with stressed assets. which left IBC as the only route.
Committee, after an unscheduled Bankers said the blanket ban on new Bankers said both these now need a
meeting, cut policy repo rate by 40 IBC entries leaves restructuring of rethink. "Restructuring looks like the
basis points to 4.0%. loans as the only plausible route to
only route available for fresh defaults
cure default but stringent RBI norms
The RBI Monetary Policy Committee in the next one year. One time settle-
voted unanimously for reduction in the will have to be amended. ment with promoters is also an option
policy repo rate, while voted 5:1 in RBI's restructuring norms at present but with cash being scarce I wonder
favour of the quantum of the cut, are heavily reliant on the IBC. Banks who will take it.

8 | 2020 | MAY | BANKING FINANCE