Finance Minister Nirmala Sitharaman on Thursday called on banks and NBFCs to roll out a loan restructuring program for COVID-19-related stress by September 15 and provide adequate support to borrowers after the moratorium is lifted on repayment of debts.
The minister urged lenders to immediately put in place a resolution policy approved by the board of directors during the review meeting with heads of commercial banks and NBFCs via video conference.
During the meeting, the minister made it clear to lenders that as the moratorium on loan repayments is lifted, borrowers must be supported and that the difficulties related to COVID-19 must not have to do with it. ‘impact on lenders’ assessment of their creditworthiness, according to an official statement.
The six-month moratorium on payment of IMEs ended on August 31.
During the three-hour meeting, according to the statement, the finance minister asked lenders to identify and contact eligible borrowers, as well as prompt implementation of a sustainable resolution plan by lenders to the revival of every viable business.
Banks are in the process of securing a board-approved restructuring framework in accordance with the RBI framework and eligibility set out by the central bank in its August 6 notification.
The finance minister also stressed that resolution plans must be put in place by lenders by September 15, 2020, and that a sustained media awareness campaign must be carried out thereafter, the statement said.
She advised lenders to ensure that regularly updated FAQs (frequently asked questions) on the resolution framework are uploaded to their websites in Hindi, English and regional languages, and also disseminated to their offices and branches, he added.
For their part, the bankers assured the Minister of Finance that they are ready with their resolution policies and have started the process of identifying and contacting eligible borrowers and that they will meet the deadlines stipulated by the Reserve Bank of India (RBI).
The Ministry of Finance has also engaged with the RBI to ensure that lenders are assisted by the central bank in the resolution process.
Last month, the RBI authorized a one-time restructuring of business and personal loans without being classified as non-performing asset (NPA).
The restructuring benefit can be used by those whose account was standard on March 1 and defaults should not exceed 30 days.
In addition, the KV Kamath committee is working on recommendations on financial metrics such as Debt Service Coverage Ratio, Post-Resolution Debt Ratio, and Interest Coverage Ratio for Business Loan Overhaul.
Resolution plans to be implemented under the framework may include converting any accrued or accrued interest into another credit facility, or granting a moratorium and / or rescheduling repayments, based on an assessment of the borrower’s income streams for up to two years.
While resolution in this framework can be invoked until December 31, 2020, credit institutions have been encouraged to strive to invoke early in eligible cases, especially for personal loans.
The state-owned Punjab National Bank last month said it planned to restructure loans worth around Rs 40,000 crore in accordance with guidelines approved by the RBI.
Resurgent India Managing Director Jyoti Prakash Gadia said businesses would benefit greatly from the resolution plan.
However, banks must find capital to finance the restructuring, as a 10% provisioning must be made to such an account, Gadia said.
There would be clarity on financial commitments in the coming days when the KV Kamath committee submits its report to the RBI, he added.
Speaking on the matter, Srei Infrastructure Finance President Hemant Kanoria said most of the clients whose cash flows have been affected due to COVID-19 are interested in benefiting from the program.
They are awaiting the Kamath committee report and the rollout of the program, Kanoria said.
“Just as NBFCs are invited to refinance loans to their customers, NBFCs should also be allowed to have their loans refinanced by banks, otherwise this will lead to a cash flow imbalance,” he added.
Alternatively, Kanoria said, NBFCs (non-bank financial corporations) should be allowed access to public deposits with certain controls.
The government should also consider creating an institution, which would act as a refinancing agency to support NBFCs, much like the National Housing Bank (NHB) which supports housing finance companies, he noted.