RBI May Offer Loan Restructuring for Select Sectors

The Reserve Bank of India (RBI) has begun spadework for a one-time loan restructuring scheme for some sectors severely hit by the COVID-19 pandemic, according to sources.

The Indian Banks' Association (IBA) and many other bodies have made representation to both the government and the RBI for the one-time restructuring in the wake of massive disruptions caused by the pandemic.

The central bank has taken note of all the suggestions, and a detailed examination of various recommendations are being undertaken, the sources said.

Based on the assessment, contours would be framed for the sector that may be eligible for the loan recast, the sources said adding that something in this respect should come towards the end of August when the six-month moratorium comes to an end.

Some of the sectors that may compete for loan recast are hospitality, tourism, aviation and construction.

In February, the RBI decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered micro, small and medium enterprises (MSMEs) that were in default as on January 1, 2020, in line with the Budget announcement.

"More than five lakh MSMEs have benefitted from the restructuring of debt permitted by the RBI in the last year. The restructuring window was to end on March 31, 2020. The government has asked the RBI to consider extending this window till March 31, 2021," Finance Minister Nirmala Sitharaman had said in the Budget Speech.

Last week, the finance minister said the government is in talks with the RBI for a one-time restructuring of loans to help stressed companies.

In 2008 also, when the world was hit by the global financial crisis following Lehman Brothers going insolvent, the RBI had announced a one-time loan restructuring for several sectors to help them tide over the economic woes.

However, the benefit was misused by many corporate borrowers and banks, compelling the regulator to tighten the rules in 2015. The RBI also initiated asset quality review in December 2015 to put an end to the concept of evergreening of accounts to keep them standard and avoid provisioning.

Subsequently, one-day default norm was introduced and resolution of default cases are now dealt as per the Insolvency and Bankruptcy Code (IBC).