Second wave of Covid-19: Consider second loan recast, PSBs tell RBI

Want lower provisioning for restructuring than last year

Reeling from the second wave of Covid-19 and its economic impact, public sector banks have proposed allowing a second recast of loans that were restructured last year and to keep the status of the accounts intact.
 
The situation is grim, especially for micro, small, and medium enterprises and households in the second wave. Many who availed of restructuring earlier do not see very healthy prospects now.
 
In this backdrop, some chief executives flagged concerns during an interaction with Reserve Bank of India Governor Shaktikanta Das and sought a second recast with prudential norms, said a senior banker aware of the deliberations.
 
Another point that was taken up in the course of discussions was the provisioning that would have to be made in case such restructuring is permitted by RBI. Lenders have sought a lower level (about five per cent) as provision for such accounts, as against the 10 per cent applied last year. Keeping in mind the stress in the system, banks have been making much higher provisions than regulatory norms, bankers said.
 
More such suggestions will be collated and put forward formally by the Indian Banks’ Association to RBI.
 
According to sources, the RBI governor acknowledged the role PSBs were playing in extending banking facilities, including credit, to individuals and businesses while tackling the challenges brought on by the pandemic.

 
Banks should quickly implement the measures announced by RBI recently (Covid Resolution Framework 2.0) in right earnest. They should continue to focus on steps to enhance the resilience of their balance sheets, Das said.
 
The meeting was attended by RBI Deputy Governors M K Jain, M Rajeswar Rao, Michael D Patra, and T Rabi Sankar.
 
The current state of the financial sector was also discussed at the virtual meeting. According to RBI’s recent state of the economy assessment, the ferocity of the second wave has overwhelmed India and the world. Real economy indicators moderated through April-May.
 
The biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending, and employment, apart from inventory accumulation, while aggregate supply has seen lesser impact. The resurgence of Covid-19 has dented, but not debilitated economic activity in the first half (45-days) of Q1FY22.
 
Credit flows to different sectors, including to small borrowers and MSMEs, was reviewed in the meeting.