Restructuring 2.0: RBI begins groundwork to support retail and SME borrowers

Restructuring 2.0: RBI initiates groundwork to support retail borrowers and SMEs

Business News: Restructuring 2.0: RBI begins groundwork to support retail and SME borrowers.

The Reserve Bank of India has initiated talks with the Indian Bankers Association on a possible extension of the one-off restructuring program announced last year to help borrowers overcome the Covid crisis. The schemes had been closed, but the bankers had asked to reopen them amid a second wave of contagion.

According to three acquainted bankers, the regulator is considering providing support to private and small business borrowers and is considering opening the restructuring facility until September 30. The discussions between the RBI and the bankers are still in their infancy and are not yet. certain in which direction the final decision will go, they said on condition of anonymity.

If the RBI allowed another round of restructuring, the scheme would be available to non-defaulting borrowers. Borrowers who have already restructured their loans once may not be allowed to take advantage of further aid under these measures, the bankers said. Support is essential for small borrowers who have been hit by localized lockdowns announced by a number of states.

Micro, small and medium-sized enterprises, which received liquidity support through the emergency credit guarantee scheme last year, have not repaid loans in large numbers. However, this time around, these companies lack the necessary support to help them overcome business disruptions, making it necessary to provide a restructuring option, the aforementioned bankers said.

According to the first of the three bankers cited above, the regulator has now recognized that the impact of the second wave could be significant enough to warrant support for borrowers. Emails sent to the RBI and IBA on Friday did not receive immediate response.

System-level data on the extent of last year’s restructuring is not yet available, but information provided by big banks as part of fourth-quarter earnings suggests that a number of retail borrowers have repaid loans. While the value of the restructured loans may not be high, the number of customers who have benefited from the relief is significant. Fewer corporate borrowers repay loans than previously anticipated. Earlier this month, in a meeting with RBI Governor Shaktikanta Das, bankers argued that small businesses will once again need support.

Speaking to the press on April 7 after the monetary policy review, Das said the regulator is in constant conversation with banks about asset quality conditions. “We always monitor asset quality, but a regulator cannot take a knee-jerk reaction that could backfire. Our decisions are based on analyzing the depth of the problem and the extent to which it can impact the economy, “Das told reporters via videoconference.

Apart from the bankers lobby, the non-bank lenders association Finance Industry Development Council, the real estate corporation Credai and the Assocham small and medium-sized business group all sought to extend the restructuring.

The one-off restructuring scheme, announced in August 2020, was intended to provide relief to borrowers who had seen their incomes hit by the pandemic. It allowed lenders to extend repayment schedules for borrowers up to two years, allowing more time to repay dues. Furthermore, the accounts restructured under the scheme did not need to be downgraded to the non-performing category and required a provision of 10% against the 15% that would normally apply.