Coronavirus effect| RBI mulls loan restructuring for impacted sectors like hospitality, tourism

The Reserve Bank of India (RBI) might propose more relief measures to mitigate the economic fallout of the lockdown on stressed sectors such as tourism and hospitality, sources say. The RBI may announce new measures along with its monetary policy announcements in August.

“Sectors such as tourism, hospitality and aviation have been crippled by the lockdown. There could be a one-time restructuring relief measure for these sectors. The RBI is looking into it,” a senior government official told Moneycontrol.

The government is holding discussions with the RBI to figure out if restructuring of stressed loans can be allowed till March 31, 2021, the official said.

The Indian Banks' Association (IBA) and many other bodies had made representation to both the government and the RBI for the one-time restructuring in the wake of massive disruptions caused by the pandemic.

"The RBI has studied all these suggestions, and is in the process of going through a detailed examination of these recommendations," the official noted.

In February, the RBI decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered micro, small and medium enterprises (MSMEs) that were in default as on January 1, 2020, in line with the Budget announcement.

"More than five lakh MSMEs have benefitted from the restructuring of debt permitted by the RBI in the last year. The restructuring window was to end on March 31, 2020. The government has asked the RBI to consider extending this window till March 31, 2021," Finance Minister Nirmala Sitharaman had said in the Budget Speech.

Last week, the finance minister said the government is in talks with the RBI for a one-time restructuring of loans to help stressed companies. Sitharaman had also said the Centre was looking at why benefits of interest rate reductions were not being passed on to customers.

The banking sector is likely to witness a major spike in non-performing assets (NPAs) going forward on account of the impact of COVID-19 on industries, which will, in turn, impact the cash flows of companies and make the recovery process even more difficult.

This is why banks are pushing for the idea of a one-time loan restructuring option. The banking sector, led by the IBA, has been pushing for a 'bad bank' to deal with the problem of non-performing assets.

In 2008 also, when the world was hit by the global financial crisis following Lehman Brothers going insolvent, the RBI had announced a one-time loan restructuring for several sectors to help them tide over the economic woes.

However, the benefit was misused by many corporate borrowers and banks, compelling the regulator to tighten the rules in 2015. The RBI also initiated an asset quality review in December 2015 to put an end to the concept of evergreening of accounts to keep them standard and avoid provisioning.

Subsequently, one-day default norm was introduced and resolution of default cases are now dealt as per the Insolvency and Bankruptcy Code.