The Reserve Bank is unlikely to extend the moratorium on bank loan repayments beyond August 31, as an extension could affect the credit behavior of borrowers without solving the problems they face after the COVID-19 outbreak. sources said.
The RBI had announced a moratorium on debt repayment for six months from March 1, 2020 to help companies and individuals overcome financial problems due to the interruption of normal business activities.
The six-month moratorium period ends on August 31.
It was only a temporary relief for borrowers affected by the pandemic, the sources said, adding that a longer default period exceeding six months may affect borrowers’ credit behavior and increase default risks after the resumption of loans. scheduled payments.
It should be noted that several bankers, including HDFC Ltd Chairman Deepak Parekh and Kotak Mahindra Bank Managing Director Uday Kotak, had asked RBI Governor Shaktikanta Das not to extend the moratorium, as many are taking advantage improperly from the facility.
As the various containment measures implemented by the government begin to moderate and economic activity accelerates, continuation of the temporary measures would not be enough to address borrowers’ cash flow problems.
Therefore, a more durable solution was needed to rebalance the debt burden of viable borrowers, both businesses and individuals, relative to their cash flow-generating capabilities in the post-closing scenario, the sources said.
It was with the above objective that the Reserve Bank of India (RBI) recently announced a special resolution window for stress related to COVID-19 within the existing prudential framework for the resolution of stressed assets.
It strikes a balance between protecting the interests of depositors and maintaining financial stability on the one hand, and preserving the economic value of viable businesses by providing lasting relief to businesses and individuals affected by the COVID-19 pandemic on the other, the sources said.
Resolution plans to be implemented under the framework may include the conversion of any accrued or accrued interest on another credit facility, or the granting of a moratorium and / or the rescheduling of repayments, based on an assessment of the flows. of borrower income, up to two years, the sources added.
While resolution in this framework can be invoked until December 31, 2020, lenders have been encouraged to strive for early invocation in eligible cases, particularly for personal loans.
Therefore, it is intended that the concerns of the borrowers are addressed by the resolution framework in which the moratorium is also a relief option that the borrower can take advantage of.
According to sources, banks can tailor waivers for each borrower to meet the specific problem the borrower is facing based on need, rather than taking a blanket approach to tackling the problem.
The RBI governor recently said that while the loan moratorium was a temporary solution in the context of the lockdown, the resolution framework is expected to provide lasting relief to borrowers facing COVID-19-related stress.
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