Banks were disappointed as the central bank gave no indication on relaxing debt restructuring norms, despite requests from lenders.
As per Reserve Bank of India guidelines, banks have to make higher provision for restructuring debt which are standard assets, which means lenders had to set aside higher amount of capital.
“This does not mean RBI will not offer the relaxation later. They are aware of the situation. Companies are yet to start operations. Once they start, we will be in a better position to assess their need and loans could be restructured accordingly,” said a CEO of a large public sector bank.
However, banking and financial sectors were the worst hit in the markets on Friday as RBI kept mum on the moratorium, with stocks such as Axis Bank, Bajaj Finance, HDFC, IndusInd Bank, HDFC Bank and ICICI Bank featuring among the top losers in the Sensex pack. The BSE Bankex and BSE Finance indices were the worst performers among the sectoral indices, shedding 2.44% and 3%, respectively.
“RBI has not announced any relief on the restructuring of loans to address the risk of rising asset quality issues in the banking sector, which has come as a disappointment for equity markets,” said Gaurav Dua, senior VP, head, Capital Market Strategy & Investments, Sharekhan by BNP Paribas.
Apart from relaxations in debt recast norms, banks were expecting dilution in asset classification norms. At present, an account becomes non-performing asset if repayment is due for more than 90 days.
“Going forward, we expect a one-time restructuring by RBI and a change in asset quality norms from 90 days to 180 days. This relaxation should be given along with a well-laid out calendar of returning to the current norm of 90 days in the next two years,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
RBI has, however, permitted lenders to convert accumulated interest on working capital facilities over the total deferment period (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan to be fully repaid during the current fiscal ending March 31, 2021.
“Given that the economy would take considerable time to recover, a higher EMI will be difficult to honour. A one-time restructuring would have enabled a more certain recovery,” said Abizer Diwanji, Partner & Leader Financial Services — EY India.
RBI also permitted lendersto reassess the working capital cycle of a borrower up to an extended period till March 31, 2021 to provide necessary leeway to lenders to make an informed assessment about the impact of the pandemic on the entity.
“Such changes in credit terms permitted to borrowers to specifically tide over COVID-19’s fallout will not ... result in asset classification downgrade,” the central bank added.
RBI has also extended the resolution timeline of stressed assets as it exempted the six-month period from the calculation of the 30-day review period and 180-day resolution period, if the review/resolution period had not expired as on March 1, 2020.
