A customer waits to deposit Indian 100 rupee banknotes at a counter inside an Axis Bank Ltd. branch in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Assocham Calls For Extending RBI’s One-Time Debt Recast Scheme To Larger Loans

The central bank blinked by easing default deadline for small business loans up to Rs 25 crore. Now, it has received another such demand for much larger borrowings.

Assocham, in a letter to the Reserve Bank of India and Finance Ministry, stressed the need to extend the scheme for larger companies with a debt more than Rs 500 crore, according to Bal Krishna Goenka, president of the industry lobby.

The central bank, in its Feb. 12, 2018 circular mandated that banks classify even a single-day delay in repayment as default and laid down strict timelines to initiate insolvency proceedings. But on Jan. 1 this year, it announced a one-time restructuring scheme for micro, small and medium enterprises with loans up to Rs 25 crore. That allows accounts not to be classified as non-performing assets till March 2020 even if they are in default. The RBI’s regulatory forbearance—that it abandoned in 2015—sparked criticism on fears that it may lead to similar demands.

Also read: MSME Debt Restructuring Only After Examining Viability, Says RBI Governor 

Goenka, on the sidelines on an event today, said the scheme that Assocham is proposing should focus on companies which do not have a history of default or restructuring.

“The joint lenders forum scheme was repealed last year that allowed for some level of discussion between banks and the borrowers,” he said. “We are seeking that lenders should be allowed to do this one-time restructuring in a similar structure. It’s a need for the industry. Everything cannot be sent to the National Company Law Tribunal.”

This comes even as Indian banks grapple with more than Rs 10 lakh crore worth of bad loans as of December. The Insolvency and Bankruptcy Code, meant to provide a time-bound resolution scheme for stressed accounts, has failed to meet expectations. Nine of the 12 large corporate accounts admitted under the law in June 2017 are still under resolution—long after the 270-day deadline.

The RBI, in its financial stability report released in December, however, estimated that the gross bad loan ratio for the banking system may drop to 10.3 percent by March this year compared with 10.8 percent in September.

Also read: RBI Forms Expert Committee For MSME Sector Led By UK Sinha