Don't extend loan moratorium, it is being misused, Deepak Parekh urges RBI

Says some able borrowers are using it to deliberately delay payments

HDFC Chairman Deepak Parekh made a strong plea to the Reserve Bank of India (RBI) on Monday, not to extend the moratorium beyond August because some borrowers, who otherwise have the ability to pay, are taking advantage of the relaxation.

Refraining from responding to the call, RBI Governor Shaktikanta Das said there was much interest in Parekh’s suggestions. He added that while he had taken note of them, he would not comment immediately. The governor was interacting with members of the Confederation of Indian Industry (CII).

In March 2020, the RBI extended the moratorium as a step to mitigate the burden of debt servicing and enable continuity of viable businesses and households impacted by the pandemic. The RBI initially allowed it for three months ending May, but later extended it till August.

Agreeing with the RBI governor’s optimism regarding economic prospects, Parekh said there was talk of a further 3-month extension.

“This (moratorium) is going to adversely impact financial sector entities, especially small NBFCs,” he said during the webinar. Parekh also made a case for direct purchase of corporate bonds by the RBI, to ensure liquidity and one-time restructuring of loans.

With respect to the RBI buying corporate bonds, the governor said the law did not permit the same, at present. However, it is not just the question of law permitting or not. 

The RBI has provided liquidity support through long-term repo operations and its variants.

The issuance of corporate bonds in the first quarter amounted to Rs 1 trillion, much more than Q1FY20.

Most of the resources have gone into ‘AAA-rated’ bonds and not into ‘AA’ or ‘A’ instruments. Precisely for this reason, the government has announced a scheme for first-loss guarantee and a new special purpose vehicle through which liquidity would be mainly targeted towards lower-rated bonds, he added.

Responding to a query on foreign exchange reserves and currency value, the governor said the RBI did not have a fixed target as regards the rupee-dollar ratio. 

The policy approach was basically to prevent extreme volatility in the forex market. 

Das pointed out that the volatile exchange rate was a problem for both importers and exporters, and also to those who have forex transactions.

Regarding going back on facilities and guarantees, he said there had been such cases among banks. There has, however, been improvement over the years, he added.

He emphasised that the RBI constantly engaged with banks to highlight the issue. Ultimately, it boils down to risk aversion. There needs to be greater interaction in the Indian Bank’ Association to deal with such challenges, he said.

Referring to effects of extreme risk aversion, he said that to be fair to banks, there was an extent to which credit risk could be assumed. It was commercial judgement on part of lenders so they should be given room for making risk assessment.