Together the Indian government and central bank are actively looking for remodeling the loans because of the effects coronavirus has on businesses, finance minister Nirmala Sitharaman said on Friday.
“The focus is on restructuring. The finance ministry is actively engaged with the RBI (Reserve Bank of India) on this. In principle, the idea that there may be a restructuring required is well accepted,” Sitharaman said.
Earlier RBI had offered six-month moratoriums on principal and interest to the banks and financial institutions. The same was given to all individuals and corporates holding term loans until August 31.
Although different bankers have underlined the burden this is building on bank balance sheets.
At the beginning of the week, HDFC Bank chairman Deepak Parekh in discussion with the RBI governor said that the moratorium was not used correctly to some extent and therfore should be discontinued as it can harm the banks, especially the smaller non-bank finance companies or shadow banks.
Parekh rather urged Governor Shaktikanta Das to ponder on a one-time restructuring scheme instead.
The RBI’s financial stability report released last week showed that at the headline level, 50% of total outstanding loans were under moratorium of as April.
As per the RBI’s financial stability report released last week, it displayed that as of April at the headline level 50% of total outstanding loans were under moratorium.
The report also showed that bad loans could shoot up to almost 15% of entire loans by March 2021 in a worst outcome, in contrast with 8.5% in March this year.
Shaktikanta Das replying to Parekh’s comments sais that any decision regarding the extension of loan moratorium beyond August 31 has not been taken yet.