Covid-19 crisis: Banks seek relaxed NPA norms, moratorium extension

Banks and financial institutions expect much heavy lifting through credit support, pegged at over Rs 11 trillion in FY21, in the days ahead. As a result, lenders have sought the easing of NPA norms, one-time restructuring, and extension of the moratorium till August-end for borrowers affected by the Covid situation.
 

Senior bank executives said the Indian Banks’ Association (IBA) has already approached the Reserve Bank of India with a plea for easing regulatory norms, so as to support borrowers hit by the outbreak.
 

The rule stating that loans unpaid for 90 days in a row will be categorised as non-performing assets (NPAs) needs to be relaxed. The IBA, a banking industry lobby group, has recommended that this period be extended from to 180 days for the current financial year.
 

In FY22, it could be restored to its original status in two stages. For first six months, loans due for 120 or more days and remaining unpaid for 90 days, will be treated as a bad loan. The RBI may announce its decision in the next few days. This should also accompany the one-time restructuring of loans, given the concerns of borrowers go beyond liquidity. They now include viability and the capacity to change as well as survive in different business environments, in the post-Covid world, said bankers.

The three-moratorium is nearing its end (on May 31). This breathing space has been deemed inadequate and a further 90 days sought by the sector. In addition, majority of government support under the Rs 20.97-trillion package, announced to deal with the adverse impact of the pandemic, is in the form of guarantees and interest subventions.
 

Government spending this fiscal year, pertaining to this package, is expected to be below 1 per cent of the gross domestic product (GDP), according to rating agency Brickworks. The financial sector — regulator, banks, finance companies and microfinance institutions — will bear much of the responsibility for handholding of borrowers.
 

Rajat Bahl, chief ratings officer at Brickwork Ratings, said: “Over Rs 11 trillion of fresh credit could be pumped into the domestic economy in the current fiscal year (FY21) under this package, mainly by banks and other financial institutions (FIs).”

According to RBI data, scheduled commercial banks dispensed Rs 6 trillion in loans in FY20, much lower than the Rs 11.46 trillion given in FY19. Outstanding credit was Rs 103.7 trillion at the end of March 27.
 

While the package in itself looks promising for India Inc, the credit mechanism and guarantee structures are yet to be announced, which are key to effective implementation of the package.
 

The government is expected to adequately capitalise public sector banks and FIs to support their credit outlay, said the rating agency.