Government In Talks With RBI For One-Time Restructuring Of Loans, Says Finance Minister

The government is in discussions with the Reserve Bank of India for a one-time restructuring of loans as the outbreak of Covid-19 pandemic has strained finances of borrowers, Finance Minister Nirmala Sitharaman said.

“We are definitely talking with RBI to see if one-time restructuring can be offered also looking at characterization of a company as stressed, not stressed…,” Sitharaman said at an industry interaction on Thursday.

The Finance Minister’s comments come after country’s top lenders approached the RBI seeking permission to restructure stressed accounts without having to classify them as non performing assets. With elevated bad loans, banks fear that large scale restructuring may become necessary due to the fallout of Covid-19.

Characterisation of companies as stressed or an NPA have added to stress and pain during the time of the pandemic, Sitharaman said.

Lenders have sought restructuring, including an extended repayment period, lower interest rates and additional financing, without any downgrade in the asset classification from standard to non-performing, BloombergQuint reported in April. The regulator is yet to take a view on this.

The RBI has already permitted a six-month moratorium on repayments till end of August. Should the regulator shun requests of a one-time restructuring, the Indian banking system may see a jump in bad loans, analysts fear. McKinsey & Co. forecasts an increase in the country’s bad debt ratio, which is already at 9.3%, by 700 basis points in the aftermath of the Covid crisis.

Solution for Interest Rate Transmission

Separately, the finance ministry is engaging with the RBI to understand why interest rate transmission to borrowers has not been ‘as speedy as it should be’, Sitharaman said.

The RBI has shown agility in reducing interest rates, but reasons given by banks for not cutting rates have not been convincing enough, Sitharaman said. She added that the government will come up with some ‘fair’ solution on this.

The RBI has cut benchmark repo rate by 115 basis point since March to 4%.