RBI Seeks Views On Additional Relief To Covid-Ravaged Industries

A shopping mall and offices from a dilapidated restaurant during lockdown restrictions in Noida, Uttar Pradesh. (Photographer: Anindito Mukherjee/Bloomberg)

RBI Seeks Views On Additional Relief To Covid-Ravaged Industries

The Reserve Bank of India has reached out to bankers and industry bodies to judge whether sectors worst hit by the Covid-19 pandemic, such as aviation, tourism, hospitality and retail, will need additional support.

According to three people familiar with the matter, the regulator is trying to assess the damage to businesses in these industries, with no clarity yet on whether sector-specific relief will be considered.

So far the RBI has reopened the one-time restructuring window for retail and small business borrowers. Bankers have sought similar relief for large corporates. However, this may not be enough for the sectors where business activity has come to a near standstill for the second time in twelve months.

Mid-corporate borrowers in these sectors have been seeking special restructuring, the people cited earlier said. The second wave has impacted their already weakened financials and there is no certainty of business bouncing back even once localised lockdowns ease, the people said.

Companies in the hospitality and retail sectors would need repayment relief which is longer than the two years permitted under the one-time restructuring scheme, the first of the people quoted above said. They may also need deeper restructuring options, such as the conversion of debt into long-term zero-coupon paper, this person said.

Such restructuring is permitted under the June 2019 framework of the RBI but these accounts then need to be downgraded to the non-performing category and provided for, the first person cited earlier said.

No one knows what the eventual impact of the second wave will be or whether there will be a third wave, said a second banker. We have asked the RBI to remove the limit of only a two-year repayment extension for these borrowers, said this banker, adding companies in these industries should get a larger restructuring window with more options.

An email sent to RBI on Tuesday remained unanswered.

Also read: Private Bank CEOs Pitch For Moratorium, Large Corporate Restructuring

The stress across many of these sectors has been rising.

Across the hospitality sector, occupancy across the country dropped 16-18 percentage points, while revenue per available room dropped 40-42% as compared with March, owing to the lockdowns in various states, said a report by HVS Anarock on Tuesday.

Hotels and hospitality firms in Mumbai are the worst hit, followed by Pune, Hyderabad, Bangalore, Kochi, Chandigarh and New Delhi, according to the report.

Across the retail sector, according to Fitch Ratings, physical non-food retail stores are likely to face the brunt of the localised lockdowns. Fashion retail, in particular, faces a greater degree of uncertainty on recovery, Fitch Ratings said. Future Group, one of the country’s largest retailers, has already undergone a one-time restructuring last year.

For the aviation sector, ICRA, in a note on May 24, said the second wave of Covid-19 infections is likely to delay recovery in traffic. Passenger traffic growth is now estimated at 80-85% year-on-year in FY22 compared to 130-135% earlier. Air travel had fallen sharply in FY21.

The banking sector has the largest exposure to the retail sector among these, data from the Reserve Bank of India shows.

While some of these sectors may need support, there are pros and cons of doing both styles of restructuring, said VG Kannan, former chief executive of the Indian Banks Association.

“While the common template for restructuring helps in quick implementation, it doesn't cover sectoral complexities for a lot of borrowers. In the case of specialised schemes for sectors, the drawback is not everything can be addressed by the banks," Kannan said, adding sectoral problems must be dealt with in coordination with the government where companies can be given waivers on statutory payments like taxes. “Banks cannot be expected to take the full burden.”

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