Loan moratorium: RBI likely to announce one-time loan restructuring guidelines soon

2 min read . 06 Sep 2020Written By Anulekha Ray

• The central bank permitted the lenders a one-time restructuring of loans without classifying them as NPAs
• The RBI set up a five-member committee under K.V. Kamath on 7 August to recommend eligibility parameters for restructuring stressed loans

The Reserve Bank of India (RBI) is likely to announce the financial parameters of its proposed loan restructuring scheme soon. In his interview to CNBC Awaaz, RBI Governor Shaktikanta Das said that banks can extend the loan moratorium by 3, 6 or even 12 months under the one-time restructuring.

To mitigate the hardships faced by the borrowers during coronavirus pandemic, the central bank allowed the lenders to grant a loan moratorium for for three months of EMI (Equated Monthly Instalments), falling due between March 1 and May 31 2020. Later, RBI extended it for further three month till August 31.

The central bank later permitted the lenders a one-time restructuring of loans without classifying them as non-performing assets to help companies and individuals manage the financial stress caused by coronavirus pandemic. Only those companies and individuals whose loans accounts are in default for not more than 30 days as on 1 March, 2020, are eligible for one-time restructuring. For corporate borrowers, banks can invoke a resolution plan till 31 December, 2020 and implement it till 30 June, 2021.

For personal loans, banks have an option to invoke the resolution plan till December 31,2020 and implement it within 90 days from the date of invocation. Accounts which are standard, but not in default for more than 30 days as on March 1,2020 will be eligible for restructuring.

The RBI set up a five-member committee under former ICICI Bank chief executive chairman K.V. Kamath on 7 August to recommend eligibility parameters for restructuring stressed loans. The committee will only specify financial parameters like debt-equity and debt coverage, Das said in an interview.

The Supreme Court of India on 3 September passed an interim order saying that the accounts not declared as non-performing asset (NPA) as on 31 August shall not be declared as NPAs till further notice.

While arguing whether banks should charge interest on moratorium period, Solicitor General Tushar Mehta told the Supreme Court, "The idea of the moratorium was to defer repayment to ease the burden caused by COVID and lockdown so that business can manage working capital. The idea was not to waive off interest. The effort is that those who are affected by COVID and facing distress get the benefit and those who are defaulters are not able to take benefit."

"The expert committee will come up with sector specific guidelines on September 6," Mehta told the apex court.

The Centre and RBI on 1 September informed the Supreme Court that the moratorium period on repayment of loans amid the COVID-19 pandemic is “extendable" by two years. Finance Minister Nirmala Sitharaman earlier asked bankers to roll out loan resolution schemes by September 15.