The Reserve Bank of India is likely to extend the moratorium on repayment of loans by three months on account of an extended lockdown, according to an SBI Research report.
The central bank had in March announced a three-month moratorium on repayment of all term loans due between March 1, 2020, and May 31, 2020. Since then, however, the lockdown has been extended three times and is now slated to end on May 31.
“With the lockdown now extended up to May 31, we expect RBI to extend moratorium by three months more,” SBI Research stated in its Ecowrap report.
An extended moratorium will imply that companies need not repay loans until August 31, 2020. That, however, will result to a build-up in interest that companies may not be able to service in September. Such accounts will then run the risk of being classified as non-performing loans, according to RBI norms.
"Thus, the RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of 90 day norm," the report said.
The central bank’s June 7 circular is stringent and gives little flexibility to banks.
"The revised restructuring norms should give banks to restructure like say converting interest liabilities up to March 2021 into term loans, repayable in 3-5 years for working capital and at the end of the tenor in case of term loans," the report said.
The central bank also needs to also clarify whether working capital expansions classify as Covid-19 debt or not, it said.
RECOMMENDED FOR YOU
POPULAR