NEW DELHI: Banks, battered by the pandemic last year, are bracing for more pain after the imposition of lockdown-like curbs by several states in response to rising COVID-19 infections. Lenders fear that the fresh restrictions would hurt borrowers, triggering a second wave of loan defaults and worsening asset quality.
But, the Reserve Bank of India (RBI) is not keen on granting another moratorium period on loans for borrowers. This would mean that every default will be counted as a delinquency, adding to the banks' headline gross bad loan levels (GNPA) and pinching lenders harder.
Anticipating that the NPA situation will worsen, both bankers and industry chambers have pitched for some sort of relief for retail and small business loans. In a representation to the Finance Ministry, industry body ASSOCHAM urged the government to reimpose a moratorium on taking debt-laden firms to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) till December.
The government had, in June 2020, granted a moratorium on the initiation of insolvency proceedings for any defaults occurring March 25, 2020, onwards for a period of 12 months. However, the moratorium was lifted in the last week of March. "...placing the NCLT resolution process under suspension again is a critical interim measure, which needs to be expedited, until targeted assistance can be granted," ASSOCHAM stated.
The earlier suspension had led to only 161 insolvency petitions related to earlier defaults being admitted to the NCLT during the first half of FY21 compared to 889 cases in the year-ago period. And just days ago, RBI Governor Shaktikanta Das had a meeting with the heads of public and private sector banks, where lenders raised concerns about a potential rise in stress levels.
According to an official who attended the meeting and wished to remain unnamed, a few bank chiefs also sought an extension of the one-time restructuring scheme at least by another six months.