HDFC chairman Deepak Parekh | Photo: Flickr
HDFC chairman Deepak Parekh | Photo: Flickr
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New Delhi: HDFC chairman Deepak Parekh Monday asked Reserve Bank of India Governor Shaktikanta Das not to further extend the loan moratorium period beyond 31 August.

With the Covid-19 pandemic adversely impacting businesses across the manufacturing and services sectors, Parekh, along with other industry leaders including Kotak Mahindra Bank chief Uday Kotak, also sought a one-time loan restructuring.

After the RBI governor’s keynote address at the national council meet of the Confederation of Indian Industry (CII), Parekh said: “People who have the ability to pay, whether it is corporates or individuals, are taking advantage of this moratorium and deferring payment. There is some talk that there is going to be another extension of three months… that is going to hurt us. It will hurt the smaller non-banking finance companies particularly.”

The RBI had initially announced a three-month loan moratorium in March, and then further extended it by another three months till 31 August. This provided a reprieve for all term loan borrowers from repaying the interest and principal component of the loan, even though the interest kept on accruing.

Also read: 25-30% of bank loans under moratorium but only small portion of these expected to turn NPAs

Why restructuring is required

With the hit on economic activity worse than anticipated due to the prolonging pandemic, there has been a growing clamour for a one-time loan restructuring, with a few industry leaders also asking for extension of moratorium.

One-time restructuring allows banks to either extend loan tenures or change payment terms or extend additional loans to ensure that the account is not classified as a non-performing asset, thereby forcing banks to set aside more funds as provisioning. The last such loan restructuring was done in the aftermath of the global financial crisis of 2008.

Parekh said all financial institutions will be saddled with huge amounts of non-performing assets by next year if loan restructuring is not allowed.

“We had done that in 2008. It is worth considering to avoid future problems,” Parekh said.

RBI’s financial stability report released Friday had forecast that NPAs in the banking system could worsen to 12.5 per cent by March 2021 from 8.5 per cent in March 2020.

Kotak, also the chairman of the CII, echoed Parekh’s views. “There is a growing view across the CII membership of a need of an one-time restructuring,” he said, adding that Covid-related stress as well as the need for funding India’s aspiration to become a $5 trillion economy in a post-Covid world will mean banks’ capital requirements will be much more.

Kotak also stressed the need for continuing the levels of liquidity.

Das did not reveal what the RBI thinks on the matter, but said he has noted the suggestions made by Parekh and Kotak.

Disclosure: Uday Kotak is among the distinguished founder-investors of ThePrint. Please click here for details on investors.

Also read: The risky game Indian banks are playing as Covid loans moratorium nears its end


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