Deadlock over loan moratorium extension?

The executives in the banking industry and industrialists are divided over the extension of loan moratorium, which is going to end on Monday (August 31). The government and Reserve Bank of India (RBI) want to end the moratorium as it hurts the health of the banks, but there is still uncertainty over the market, which is yet to come back to normalcy.

Several bankers were vocal about the removal of the moratorium, including HDFC Chairman Deepak Parekh, Kotak Mahindra Bank Managing Director Uday Kotak and State Bank of India chairman Rajnish Kumar. They complained that many of the borrowers are taking undue advantage using moratorium.

An executive with an automaker said that they have expressed their concerns to the government on lifting the moratorium. "The demand is not yet back. Festival season is also not going to be encouraging," he added. Another executive with a real estate company said the bankers are worried about their profits, though they know the market reality.

Earlier, the finance ministry had consulted various industry leaders and they advised the government to continue the moratorium for companies in most affected sectors such as automobile, steel, hospitality and real estate for another three months until November.

SBI's Rajnish Kumar earlier said that the six months is long enough for allowing non-repayment. Deepak Parekh earlier said, "We see that even people who have the ability to pay whether corporate or individuals are taking advantage under this and deferring payment." Extension of moratorium beyond August will hurt banks and non-banking financing companies, Parekh said.

The government had announced one-time loan restructuring facility and deputed veteran banker KV Kamath-led panel to come out with the modalities of restructuring of loans for both corporate and individuals. The bankers are of the view that the restructuring of the loans will address most of the issues of the borrowers.

In March, RBI introduced the loan moratorium to provide relief to borrowers and help businesses to weather through COVID-19 pandemic phase. According to RBI data, nearly half of the customers, who account for around half of outstanding bank loans, availed of the benefit. The central bank had initially allowed moratorium for the three months until May 31 but later extended it till end-August. RBI allowed debt recast later.

In the meanwhile, the Supreme Court asked the government to clarify its stand on the waiver of interest on loan repayments during the moratorium period. A Bench headed by Justice Ashok Bhushan said the government had failed to clear its position on the issue and hiding behind the RBI.

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