Loan recast: Banks to RBI: More Covid-hit companies may need recast of loans | India Business News

MUMBAI: Banks have told the Reserve Bank of India (RBI) that the extended restrictions due to the resurgence of the Covid pandemic have caused significant stress on businesses and a restructuring window may be required for more loans.
Although the RBI did allow lenders to restructure loans for borrowers earlier this month, the facility was restricted to loans of up to Rs 25 crore. Since the measures were announced, the second wave of Covid emerged across the country, resulting in most parts of the country observing some form of a lockdown.
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On Wednesday, RBI governor Shaktikanta Das met with the CEOs of public sector banks (PSBs) through a video conference. Acknowledging the role played by PSBs in extending various banking services including credit facilities to individuals and businesses during the pandemic, the governor asked them to quickly implement the Covid relief measures already announced. He also reiterated the need for banks to raise capital to increase the resilience of their balance sheet should further shocks arise out of the pandemic.

The governor in the meeting sought feedback from banks on the state of the financial sector and credit flows to different sectors, including small borrowers and micro, small and medium enterprises. The governor also sought information on whether rate reductions by banks were in line with the RBI’s action to bring down the cost of funds.
Bankers said that, while the first quarter is traditionally a sluggish period for credit growth, this year loan pick-up was even lower because of the lockdown. They said that the extended lockdown, while necessary to contain the pandemic, is hurting a large segment of the economy. There is a clear indication of collection efficiency being hit. While earlier the banks were more concerned about the survival of small businesses, they are now worried that larger companies may also start facing liquidity related issues as economic activities in non-essentials have been significantly hit.
Non-banking finance companies (NBFCs) have already asked the RBI for a moratorium for their borrowers and their borrowings from banks. Bankers say that in 2020, NBFCs shrunk their books and reduced debt and obtained cheap finance because of targeted long-term repo operations announced by the RBI, which helped them tide last year’s lockdown. This year, no such package has been announced so far.