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RBI loan restructuring scheme: Borrowers 60 days overdue should be eligible, feel banks

RBI loan restructuring scheme: Borrowers 60 days overdue should be eligible, feel banks
RBI's recently announced loan restructuring scheme should ideally cover borrowers whose payments have been overdue for 60 days, senior officials at four leading banks told CNBC-TV18.
At present, only those borrowers who were making regular repayments on their loans, and were not overdue for more than 30 days as on March 1, 2020 are eligible for the restructuring scheme. The restructuring will enable borrowers to reschedule their loan payment, or get a limited loan repayment holiday, or lower interest rates on their existing loans depending on the agreement they reach with their bank(s).
The officials said that there are quite a few genuine loan accounts, which were showing signs of stress even before the outbreak of COVID-19, and these could be considered for the restructuring. For instance, many exporters were facing problems in their businesses even before the pandemic hit India, banks said.
“COVID-related stress was visible in January also. Some of accounts with export businesses, or other internationally connected customers- they had problems in January itself,” said the head of a large public sector bank. “I know whatever rules you have, there will be someone who has an issue and wants more and we have to draw the line. But there are genuine cases to consider,” he added.
The smaller public sector banks CNBC-TV18 spoke to also raised concerns about capital adequacy since they will have to set aside 10 percent of the loan value as provisions towards the restructured loans. They are worried that they may not be able to raise capital as easily as some of the private sector banks.
“Under the earlier corporate debt restructuring mechanism, we were setting aside 5 percent provisioning. So why 10 percent under new rules?,” asked the head of another Mumbai-based public bank. “Economic conditions are not very robust, where markets will have appetite to fill up capital coffers of banks. We are seeing markets are already overheated, and it will be tough for all banks to raise money in current circumstances, unless there is government recapitalisation,” he added.
Banks are awaiting the recommendations of the Expert Committee led by former ICICI Bank CEO KV Kamath, before they start restructuring the corporate accounts. The 5-member committee is expected to submit its report within 30 days of being formed on sector-specific parameters to consider and other details.
The officials mentioned above said they would first restructure retail and large MSME loans by the end of September. They said that most large corporates may not need the benefit of restructuring, but many mid-sized corporates would.
“We have already cleaned up large corporate accounts. I don’t see a single large account of over Rs 1,000 crores in my bank where restructuring may be needed. But mid-corporates and smaller corporates certainly need help,” added another executive from a large bank.
Textiles, real estate, auto ancillaries, hospitality and aviation are among sectors being considered for restructuring.
“For instance, lease rental discounting loans in the real estate sector are obvious candidates. It is very visible rents are not being paid due to COVID so their instalments will have to be rescheduled to match cash flows. These are secured assets so we are not worried about restructuring them,” he added.
“We are getting our board level policy for restructuring approved at the earliest, and we will have guidelines in place to recast retail and MSME loans first,” said another senior executive at a leading bank.
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