NEW DELHI: The finance ministry has recommended a one-time restructuring of loans after both public and private sector banks flagged the issue of increasing non-performing assets (NPA) in the backdrop of the coronavirus outbreak in their last two meetings with the ministry.
According to sources, Finance Minister Nirmala Sitharaman personally took up the matter with RBI Governor Shaktikanta Das, who is said to have assured to come up with a solution “soon”. “Because of the pandemic, one-time loan restructuring is inevitable. Now the ball is in the RBI’s court and they have assured to work on it. While there was no conclusion in today’s board meeting, we expect a decision soon,” a senior official in the finance ministry said.
Sitharaman had on Thursday said she was in talks with RBI on it. “We are talking to Reserve Bank to see if a one-time restructuring can be offered so that everyone comes out a bit more honourably (out) of this (crisis),” she said in a video conference interaction with senior members of Chennai International Centre.
If one-time restructuring is allowed, it would mean tweaking the June 7 RBI circular on the framework for resolution of stressed assets.
The circular allows for loan restructuring by banks but with stiff terms and conditions. For instance, it requires banks to immediately downgrade the account being restructured into an NPA and make higher provisions of at least 15%.
In their previous meeting with Sitharaman, bankers had said that in the current pandemic situation, the provisioning allows little operational flexibility. RBI had on June 19 asked all banks to carry out detailed stress tests to assess the impact of Covid-19 on their books. The consolidated stress test report is expected to help RBI arrive at a policy decision.
RBI apprehensions and FinMin’s position
RBI hesitant to relax delinquency period for classification of NPAs beyond 180 days from the current 90 days as it will defeat the whole purpose of June 7 circular. Finance Ministry okay with it
RBI feels the provision can be misused as was done in the aftermath of the 2008 financial crisis. Finance ministry argues that RBI can insert riders to prevent misuse of the scheme
RBI wants restructuring to exclude MSMEs and previously stressed sectors like power, telecom and realty. Finance ministry OK with excluding MSMEs; no agreement on excluding the other three sectors yet
Matter to be resolved before August, when both RBI and FinMin have to file affidavits in SC on interest waiver on loan moratorium
‘Focus on revival’
“This is not the time to talk of fiscal consolidation. I think that what needs to be protected is the expenditure over fiscal deficit and this is exactly what the Central government has done,” 15th Finance Commission Chairman N K Singh said on Friday