Shivanand Pandit
To alleviate the financial anxiety of impoverished business entities and persons transpired due to lockdown to exterminate the lethal corona virus, during the last week of March 2020, the Apex bank of India had offered a three-month freeze or moratorium for installments of all term loans and advances. Although the amenity was protracted till the end of August 2020, considering the enduring monetary and economic crisis, the RBI has decided to permit banks to restructure of advances of fiscally strained organizations and assigned the task of solemnizing the structure of restructuring of loans to the professional committee.
The committee has now delivered the finer facts of dealing with stressed lends throughout 26 trade sectors. The expert committee has reported that approximately 72% of banking sector debt has been adversely affected till now. However, around 42% or Rs22.2 trillion rupees of debts were under trauma much earlier and 30% or Rs15.50 trillion of debts have been wedged by the epidemic. Debtors or borrowers of the banks which were categorized as standard and with an amount outstanding below 30 days as at March 1, 2020 fit under the frame. The resolution agenda should be appealed before December 31, 2020 and the strategy has to be instigated within 180 days from the date of invocation.
Wrong medication
When the confidence of depositors of banks is fading, the regulator is not able to restore the power-packed banking system and flood of financial scams are present far and wide, relief offered to borrowers by the RBI by letting moneylenders to offer 180 days moratorium on loan settlement may prove ruinous to the financial solidity of the banking edifice. It will be unjust treatment for banks and even depositors’ return on investment will be at peril. Similarly, the apex bank may land in a pickle. Additionally, the petition pursuing interest relinquishment on loan moratorium has not yet been addressed by the Supreme Court of India and pulled on since March 2020.
Pandemics trouble all from governor to gardener and president to servant. The novel corona virus disease is not an exception to this and brought on astonishing apprehension to all. Therefore, why only banks have to bear the heat? How does one guarantee that depositors’ interests are secured while banks sacrifice a major ration of their revenue? Due to alarming rise in bad loans banks have become partly lifeless and the waiver of interest on loans under moratorium gravely hurt depositors. If a big share of the moratorium book goes bad, then banks’ aptitude to pay depositors would enervate further. There will be cash flow mismatch for many banks too. Waiver of interest on interest issue raised by the Supreme Court also certainly tweak banks and would wreck the credit behavior.
Bankers’ opinion
Rajnish Kumar, the chairman of country’s biggest moneylender State Bank of India, mentioned that a further extensive postponement of moratorium may not be necessitated. Shaktikanta Das, the governor of the RBI said that newfangled actions to permit Indian lenders to rearrange loans will offer a durable resolution for cash-strapped businesses and help revive the economy. In an online session organized by CII Deepak Parekh, the chairman of HDFC bank requested the governor of the RBI no to prolong the moratorium because even people who have the ability to pay, whether individuals or corporates, are taking advantage under this moratorium and deferring payment and he said that further extension will definitely hurt the smaller NBFCs.
Uday Kotak mentioned that sectors that are highly stressed due to the impact of covid-19 are in dire need of such restructuring and the restructuring of MSME accounts will provide the necessary relief to the sector, which has experienced one of the most severe impact resulting from the conditions of lockdown, containment, reverse migration, supply chain and trade choking due to covid-19.
To conclude, novel rules prescribed by the RBI largely depend on the substantial reinforcement of the economy. Instead of demoralizing the prudent decisions of the banks the RBI should allow the banks to employ one-time loan restructuring scheme to help harrowed borrowers. Banks should be given freedom to fabricate their own internal standards and strategies. This may eradicate felonies and muted credit growth. With this, banks may regularize the recovery in the economy through augmented lending.
