Loan recast: Bank of Maharashtra to put 'conflict of interest safeguards'

Lender would be "purely" looking at cash flow as a key parameter for approving proposals; borrowers must prove Covid-19 pandemic has impacted them

Bank of Maharashtra has put in safeguards to ensure loans are not restructured in a way that it leads to a conflict of interest between borrowers and bank executives, its managing director and chief executive officer A S Rajeev said.
 

“Our board has approved the loan restructuring policy. The restructuring powers have been delegated to the next higher authority that had initially sanctioned the loan to that particular borrower. This will ensure that there is no conflict of interest involved while restructuring takes place,” Rajeev said in a telephonic interview to Business Standard.

For instance, if a loan has been approved by a branch manager, a scale-II officer, then the restructuring application can only be processed by the senior branch manager who is a scale-III officer.

Rajeev said that the bank would be “purely” looking at cash flow as a key parameter for approving loan restructuring proposals. “We have defined all the best practices and processes. The loan restructuring will be strictly based on the Reserve Bank of India guidelines and before extending the restructuring benefits, we will verify whether the business of the borrower is really impacted  by pandemic,” the chief executive of the Pune-based bank said.

The bank estimates that loans worth around Rs 4,000 crore will be restructured based on a recent stress test. As of June end, around 23 per cent of the bank’s total loan book was under moratorium declined to around 17 per cent at the end of August.

The bank will conduct another stress test in the first week of September to determine the amount of loans that will require restructuring. “Meanwhile, we have asked bank branches to contact borrowers to give applications for restructuring, along with submitting evidence to prove that the Covid-19 pandemic has impacted them,” Rajeev said.

The bank estimates that around 2-3 per cent of its retail and corporate borrowers each will opt for loan restructuring. The bank has completed restructuring for most micro, small and medium enterprise (MSME) accounts (worth Rs 1,200 crore) according to an already existing scheme and only about another Rs 200-Rs 300 crore worth MSME loans would require restructuring.

On August 6, the Reserve Bank of India had announced a loan restructuring scheme for all types of borrowers — corporate, micro, small and medium enterprise (MSME), and personal loan segments.

For non-MSME account holders, such restructuring can be sought till December 31, provided that the borrower should not be in default for more than 30 days as of March 1. The banks have to implement the resolution framework within 180 days of agreeing upon the proposal.

Finance Minister Nirmala Sitharaman is set to hold a meeting with the chief executives of all lenders on Thursday to discuss their plans for loan restructuring.

Rajeev said that the bank had a “healthy” capital adequacy ratio of 13.52 per cent and in case of worst case scenario, it may reduce by 0.5-0.5 per cent, according to the bank’s stress test. “We are adequately capitalised. Our board has approved a plan to raise Rs 3,000 crore, including Rs 2,000 crore as equity in a period of one year,” the MD and CEO of Bank of Maharashtra said.