MUMBAI : The Reserve Bank of India will not extend the moratorium on loan repayments after it ends on August 31, people familiar with the matter said.
While an extension was actively being considered, the RBI chose not to do so because it was concerned about changes in credit behavior it could induce among borrowers and increase the risk of loan default, the people cited above said on condition of anonymity.
The initiation of a one-time restructuring of stressed accounts provided a more durable solution to address long-term bad loans, people familiar with RBI’s thinking said.
On Thursday, RBI Governor Shatikanta Das said the moratorium on loans was a temporary solution in the context of the lockdown, while a resolution framework will provide lasting relief to borrowers facing COVID-related stress.
Bankers had also expressed their discomfort at extending the moratorium beyond the deadline. Leading bankers such as Housing Development Finance Corp. Chairman Deepak Parekh, SBI Chairman Rajnish Kumar, and Kotak Mahindra Bank’s Dr. Uday Kotak, had said that some borrowers who have the ability to pay are taking advantage of the relaxation and therefore the moratorium should not be extended.
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In March, RBI introduced the loan moratorium to provide relief to borrowers and allow the continuity of viable businesses affected by the COVID-19 pandemic. According to RBI data, nearly half of the clients that account for around half of outstanding bank loans benefited from the benefit. The central bank had initially allowed a moratorium for the three months ending May 31, but then extended it until the end of August.
Later, the RBI allowed debt consolidation for both corporate and retail borrowers. Lenders can extend the repayment period for a maximum of two years, allowing a breathing space in a situation where COVID-19 has put millions out of work, reducing their ability to pay off existing debt.
RBI had also announced the constitution of an expert panel under KV Kamath to suggest financial parameters for the resolution of stressed assets in the midst of the crisis. The panel is expected to send its recommendations to RBI, which will notify them along with any modifications, if any, within 30 days.
As part of the resolution, the RBI has allowed the conversion of any accrued or accrued interest in another line of credit, or the granting of a moratorium and / or the rescheduling of repayments, based on an assessment of the income streams of the borrower, up to two years. .
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