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RBI turns focus to small borrowers, allows another loan recast

RBI turns focus to small borrowers, allows another loan recast

The Reserve Bank of India (RBI) turned selective in extending a fresh loans restructuring package as it focused on small borrowers including inpiduals, and micro and small enterprises that are bearing the brunt of the Covid second wave while leaving out the big ones who have weathered the storm in the past year.

Banks have been allowed to restructure loans of these borrowers who have a total loans of up to Rs 25 crore provided those borrowers have been meeting their payment obligations as of last March. Restructuring in such cases has to be invoked by September 2021 and the plan implemented within three months after than, RBI said.

“The devastating speed with which the virus affects different regions of the country has to be matched by swift-footed and wide-ranging actions that are calibrated, sequenced and well-timed so as reach out to various sections of society and business, right down to the smallest and the most vulnerable,” governor Shaktikanta Das said while announcing various liquidity, support and easing measures for banks to pass on to their customers.

While the latest round of measures is welcomed by the small borrowers, it skips the demands of the banking industry which sought benefits for the entire community. Bankers said the central bank’s focus has been to protect the small borrowers and save livelihoods as it believes that unlike the first wave, economic activity had not fallen off the cliff in the second wave of the pandemic.

“The clear focus is on small and micro enterprises and inpidual borrowers which is a good move because these are the most vulnerable right now. The Rs 25 crore limit is just right because it covers all inpidual borrowers and a majority of MSMEs ensuring that it is not misused. The time given till September 2021 is also crucial because it will help us analyse cash flows and chalk out a plan after considering the options,” said Suresh Khatanhar, DMD IDBI Bank.

Besides providing a restructuring window for small borrowers, the central bank also has allowed banks to extend the moratorium period for borrowers who had already opted for restructuring last fiscal.

“Lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and, or extending the residual tenor up to a total of 2 years. Other conditions will remain the same,” Das said.

For MSME loans which had taken the restructuring option earlier, lending institutions have been permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins.

Bankers said this will provide them with another option to provide liquidity where needed without restructuring loans. Governor Das reiterated the central bank’s commitment to support the economy.

“Today, we have taken some steps and we will continue to be proactive throughout the year – taking small and big steps – to deal with the evolving situation,” Das said.

Unlike last year, he stopped short of announcing blanket measures to support growth, arguing that the economic impact is limited due to localised lockdowns and a strong performance by agriculture.

“With restrictions and containment measures being localized and targeted, businesses and households are learning to adapt. Consequently, the dent to aggregate demand is expected to be moderate in comparison to a year ago,” Das said.

Moreover, the central bank would like to wait for more data inputs to measures the exact impact of the pandemic as it prepares for its bi monthly monetary policy review next month.

( Originally published on May 05, 2021 )

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