Finance minister Nirmala Sitharaman on Thursday asked lenders to swiftly put in place board-approved policy for a one-time restructuring of loans in sync with the central bank’s recent stipulation, identify eligible borrowers and roll out resolution schemes latest by September 15.
In a virtual meeting with top executives of banks and non-banking financial companies, Sitharaman reviewed their preparedness and stressed that borrowers must be given support after the expiry of the loan repayment moratorium. However, Covid-19-related distress “must not impact the lenders’ assessment of borrowers’ creditworthiness”, according to a statement by the finance ministry. Efforts must be made to revive every viable business, she said.
The meeting comes ahead of the expected announcement of the KV Kamath-led panel’s recommendations on eligibility parameters for the restructuring of loans to soften the blow to both borrowers and the lenders dealt by the pandemic.
Earlier this month, the Reserve Bank of India (RBI) extended a special window for lenders to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances. RBI governor Shaktikanta Das has said a resolution framework for Covid-19-related stressed accounts will be finalised by September 6.
In its Financial Stability Report, RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021. However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.
For their part, the lenders stated that they have already started the process of identifying and reaching out to eligible borrowers. Punjab National Bank (PNB) managing director SS Mallikarjuna Rao said last week said he expected about 5-6% of the lender’s loan book, or between Rs 36,000 crore and Rs 43,000 crore, getting recast in FY21.
Sitharaman also reviewed the progress made by various lenders under the Rs 3-lakh-crore credit guarantee scheme, which was rolled out on June 1 mainly for MSMEs, and asked the lenders to “try and extend the maximum possible relief to borrowers before the festive season”. As of August 31, banks’ loan disbursement under the scheme stood at Rs 1.58 lakh crore, of which more than Rs 1.11 lakh crore has been disbursed.
The scope of the so-called Emergency Credit Line Guarantee Scheme (ECLGS) was recently expanded to include individuals, along with a wider pool of businesses. Under this, the Centre has pledged full guarantee for up to 20% extra, collateral-free working capital loans.
Another credit guarantee scheme for subordinate debt of Rs 20,000 crore, meant for MSMEs, was also deliberated on in the meeting.
Similarly, the minister also reviewed the progress of two schemes meant to facilitate Rs 75,000-crore liquidity for NBFCs. Under these, the government has approved the partial credit guarantee scheme (PCGS) 2.0 worth Rs 45,000 crore to improve liquidity for low-rated shadow lenders. Under this scheme, bonds/commercial papers of Rs 25,055.5 crore have been approved for the purchase by state-run banks so far, of which Rs 13,318.5 crore (53% of the portfolio) comprises such papers that are rated below AA-.
These schemes for MSMEs and NBFCs were part of the Rs 21-lakh-crore package announced by Sitharaman in May to soften the blow of the pandemic.