Banks Seek Relaxations From RBI As Covid Cases Surge
Banks seek further relaxations for restructured accounts amid a third wave of Covid infections.
Domestic banks have sought further relaxations for restructured loan accounts and an extended restructured scheme from the Reserve Bank of India. The request follows a sharp rise in Covid-19 infections across a number of states, which has led to fresh restrictions in some cases.
According to two bankers with direct knowledge of the matter, the Indian Banks' Association has made representations to the regulator this month.
Banks have asked for an extension of 12 months on the two-year moratorium allowed by the RBI in its Covid-19 restructuring scheme first introduced in August 2020. The moratorium allows lenders to defer repayment of interest and/or principal for restructured borrowers.
Lenders have also asked for forbearance in case of accounts which are in default for 60-90 days from due date. Under this, the loans which are in default, but not non-performing, should be restructured without an asset classification downgrade till Sept. 30, 2022. The regulator has so far permitted restructuring for accounts which are in default for up to 30 days.
In December 2021, the banks had also asked for an extension to the time required for restructured corporates to meet business benchmarks set under the one-time recast scheme.
If the regulator were to allow these relaxations, it would be the third time that the Covid-19 restructuring scheme has been tweaked to help stressed borrowers. In May 2021, the central bank had reopened the Covid restructuring scheme for retail and small business borrowers. The regulator also extended the deadline for corporate borrowers to achieve the business targets set under the restructuring scheme from March 2022 to October 2022.
Small borrowers who saw their loans restructured in 2020, but did not avail the full two-year moratorium period, were also allowed to extend the moratorium in the second round. While this option was available, not many borrowers from the first round sought to extend their repayment schedule, the two bankers quoted above said.
Covid Fears Rising
Banks have argued that the economic recovery since the second Covid wave has not been strong enough for some borrowers to honour their repayments. Moreover, another rise in cases could lead to restrictions across India, further stifling the nascent recovery.
On Jan. 10, India reported 1.7 lakh new Covid-19 cases, taking the total tally of active Covid cases to 8 lakh. Major states like Delhi and Maharashtra have introduced night curfews and restrictions at contact intensive locations such as malls and cinema halls.
If accounts restructured in 2020 were to slip into non-performing asset category, banks could see a considerable rise in their bad loan ratios. According to estimates by ICRA Ltd., loans worth Rs 1 lakh crore were restructured under the August 2020 restructuring scheme, while Rs 1.2 lakh crore worth loans were restructured under the May 2021 restructuring scheme.
In a note on Jan. 6, Anil Gupta, vice president-financial sector ratings at ICRA, said most of these loans were restructured with a 12-month moratorium. As such, these loans will start coming out of the moratorium over the next six months.
"Therefore, a third wave poses high risk to the performance of the borrowers that were impacted by the previous waves and hence poses a risk to the improving trend of asset quality, profitability, and solvency,” Gupta said.