On March 27th, The Reserve Bank of India allowed financial institutions to impose a moratorium on repayment of loans of all terms that remain outstanding, as of March 1st. Now, Banks are jointly seeking an extension in the moratorium of this lawful suspension. This petition comes as part of a comprehensive set of measures that banks are developing to support their borrowers while keeping the revival of economy, in mind.
These mandates come in the face of the nation-wide lock-down that our PM imposed from March 22nd as Coronavirus sweeps through the world. Now that this lock-down has been extended till May of 3rd, our economy ground to a halt. Consequentially, it has become well nigh impossible for most businesses and borrowers to repay their loans.
Senior bankers have said that the encumbrance to revive the economy has fallen upon Indian financial institutions, making it harder for them to operate conventionally. There is no way that things will limp back till June and creditors will need comprehensive support covering easing of asset quality norms, tweaking of rules for restructuring. Therefore, the 3-month moratorium, allowed to debtors, looks inadequate, the bankers said.
A state bank executive has said that the issue of extension is under consideration. But, before taking it up to RBI, it should be discussed at a meeting of a key panel of the Indian Banks’ Association (IBA), later this week.
In the mean time, the Confederation of Indian Industry (CII) stated that while banks are included under essential services, NBFCs are not. Therefore, they are not able to service the MSMEs (micro, small and medium enterprises) during lock-downs. They claimed that NBFCs should be included in the definition of essential services.
One state bank official said that NBFCs have played a crucial role in semi-urban and rural areas, especially in credit disbursal and collection. They are vital for resumption of economic activities during lock-down and beyond, said the official, concurring with the demand.
CII sought an increase in credit limits for all regular banking accounts by 25 per cent, in their statement. But in the current context, one can expect delays in payments and disruptions to affect liquidity across sectors.
Moreover, CII specified RBI to relax Aggregate Sanctioned Credit Limit (ASCL) norms for corporate/banks for FY20 till further notice. Otherwise, exclusion of up to 25% of incremental borrowing from banking sector in ASCL computation was on their table.