India Inc wants extension of loan moratorium for another three months; RBI may oblige

Amid coronavirus lockdown severely impacting businesses, India Inc is hoping for an extension of moratorium on payment of term loan instalments for another three months until August 31. The Reserve Bank of India (RBI)-issued moratorium facility is going to end this month. "The finance ministry has consulted the industry bodies and some senior industrialists for taking their feedback on whether the facility should be continued," said industry sources. The government is convinced about the importance of the scheme and ready to urge the RBI to extend the facility, they added.

However, there are concerns of the industry misusing the scheme. "The government is unhappy with the way some of the corporates are making use of the scheme to preserve their liquidity, though they don't have any cash flow crisis. It is not clear how the government and RBI will be able to tweak it to avoid exploitation of the scheme," said a Mumbai-based industrialist. The RBI had, on March 27, allowed commercial banks, co-operative banks, financial institutions, and non-banking finance corporations (NBFCs) to offer moratorium on payment of instalments of all term loans outstanding as on 1 March to help alleviate hardship of borrowers.

A total of 3.2 crore account holders in state-owned banks availed the moratorium on loans, Finance Minister Nirmala Sitharaman's office tweeted recently. In another tweet, Sitharaman's office said that during March and April, the public sector banks (PSBs) sanctioned loans worth Rs 5.66 lakh crore for more than 41.81 lakh accounts, adding that these borrowers belong to the micro, small and medium enterprise (MSME), retail, agriculture and corporate sectors. Loans worth Rs 77,833 crore have been sanctioned to the NBFCs and housing finance corporations (HFCs).

The microfinance sector has been completely shattered because of the lockdown and about 75 per cent of the borrowers from the sector --- like Kirana owners, workshop owners, roadside vendors, tailors and weavers in urban and semi-urban pockets--- sought moratorium on loan repayments as their livelihood has been blocked. Though just 30 per cent of the micro loan borrowers had sought moratorium until the first week of April, the ratio jumped to about 75 per cent, according to the data compiled by microfinance industry associations.

As many as 328 companies, including well-known industrial firms, have sought moratorium on loan repayment, said rating agency ICRA last month. Tata Power Renewable Energy, JSW Paints, JSW Steel, Kalyan Jewellers, MRPL, Piramal Enterprises, TV Sundaram Iyengar, Centrum Financial Services, Air India Express, GMR Hyderabad Aviation SEZ, Hindustan Copper, Jindal Power, and Jindal Steel & Power are among the companies that sought moratorium on loan repayment, ICRA said.

If RBI extends the moratorium for another three months, the banks will see more companies queueing up for availing it as the situation has become worse, say industry sources. The extension will also help the banks as they don't need to take action against loan defaults and count the loans as non-performing assets (NPAs).

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