PNB chief hopeful of RBI allowing one-off loan restructuring by October

Punjab National Bank Managing Director S S Mallikarjuna Rao on Monday expressed hope that the Reserve Bank will unveil by October its loan restructuring mechanism for some sectors severely hit by the Covid-19 pandemic.

Rao also said that the normalcy is still too far which is making it difficult to assess the situation of companies in terms of cash-flows.

"We have requested RBI to permit restructuring. Bankers together have requested, through Indian Banks' Association (IBA), to RBI that you need to look at a one-time restructuring in all these accounts so that bankers will undertake the restructuring properly by analysing the cash flow. However, the account should not become NPA," he said during a webinar organised by CII.

Citing an example of the US Federal Reserve, Rao said, the Fed has decided to directly lend corporates with two years' installment moratorium and one-year interest moratorium, besides offering longer durations for repayment. It, he stressed, indicates normalcy restoration by some of the industries is going to take longer.

As per norms, Rao said, an account is treated as an NPA (non-performing asset) if it is restructured and provisions have to me made accordingly.

Therefore, banks through IBA have requested the RBI for forbearance with regard to restructuring norms.

"I believe in the recent board meeting they (RBI) have discussed. However, things may come out after some time. We can wait and see because as on today still we are unable to assess the cash flow of any unit because they have not come to normalcy.

"So probably in the month of September and October you will have a better visibility in understanding about the cash flow, by which time, I am expecting that some decision in this regard could come from RBI," he said.

The Reserve Bank in its 583rd board meeting on June 26 discussed current macroeconomic situation and evolving challenges being posed by the Covid-19 pandemic.

In February, the RBI decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered micro, small and medium enterprises (MSMEs) that were in default as on January 1, 2020, in line with the Budget announcement.

"More than five lakh MSMEs have benefitted from restructuring of debt permitted by the RBI in the last year. The restructuring window was to end on March 31, 2020. The government has asked the RBI to consider extending this window till March 31, 2021," Finance Minister Nirmala Sitharaman had said in the Budget Speech.

Last month, the finance minister said the government is in talks with the RBI for a one-time restructuring of loans to help stressed companies.

In 2008 also, when the world was hit by the global financial crisis, the RBI had announced a one-time loan restructuring for several sectors to help them tide over the economic woes.

However, the benefit was misused by many corporate borrowers and banks, compelling the regulator to tighten the rules in 2015.

The RBI also initiated asset quality review in December 2015 to put an end to the concept of evergreening of accounts to keep them standard and avoid provisioning.

Subsequently, one-day default norm was introduced and resolution of default cases are now dealt as per the Insolvency and Bankruptcy Code (IBC).