Coronavirus lockdown 4.0: Should RBI extend loan moratorium beyond May 31?

As coronavirus lockdown severely impacts businesses, the industry is hoping for an extension of the 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 on May 31.

Some experts think that the moratorium should continue as there is no visibility in future cash flow, while the remaining don't believe in postponing the burden to a future date. There are also concerns of some rich companies misusing the scheme.

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Here's what experts have to say on the issue of extension of loan moratorium:

Ashwajit Singh, Managing Director, IPE Global says that the loan moratorium will only defer but not solve the economic crisis faced by businesses. "The government needs to infuse liquidity in the system. As a starting point, the government, which is the biggest purchaser of goods and services, should pay off its liabilities to the private sector. Bulk of this money would find its way back into the banks as repayment of loans," he says.

Rohini Walia, COO, Thomson Audio India said that there are two major issues that have emerged from the pandemic -- cash flow crunch and huge load of fixed cost with no revenue. He opines that extension of loan moratorium would only deal with the cash crunch issue that too with a loaded fixed cost of compounded interest over outstanding amount. "Full help of loan moratorium would be useful if the interest component is waived off for this period. Else you are just postponing and accumulating the burden with no revenue in these months," he added.

Ankit Agarwal, Managing Director, Alankit Ltd, says, "The extension of loan moratorium sounds like a fair proposal to be considered in order to help mitigate tough times faced by borrowers. However since the situation calls for extraordinary solutions, the interest-free loan extension should be a major emphasis in an endeavor to tackle the distress."

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"The businesses are shut down and there is no source of revenues. It is certain that the income stream will not resume even after the lockdown ends. It will result in so many enterprises and individuals failing in servicing their debt, especially the companies in MSME sector. Extension of the loan moratorium by another three months will definitely help MSMEs to survive," said Rajesh Gupta, Co-Founder & Director, BUSY Infotech. Pvt. Ltd.

Saurabh Jhalaria, CEO, InCred said that they are not in favour of any more extension. The industry and borrowers need to deal with the situation at hand by cutting costs and selling assets if needed, he said. Jhalaria added, "Further moratorium will lead to pushing the problems for later and will be even tougher to solve. We also see a moral hazard problem where able borrowers will refuse to pay when they have the opportunity to avail of the moratorium."

On the contrary, Ram Iyer, Founder & CEO, Vayana Network said that MSMEs that are undergoing a bad crisis with no revenue for 60 days would get a breather with the moratorium. "The partial lockdown has enabled them to start business slowly and now they need capital to pay salaries, rents, other payments and procure raw materials. Between bearing operational expenses, paying loan instalment will add burden on these industries," he added.

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Kunal Varma, CBO and Co- founder, MoneyTap added, "If credit is going to be a key facilitator for post-COVID economic recovery, then providing moratorium while disbursing loans at the same time could create significant financial problems for lending institutions. It might be more useful to look at one-time loan restructuring options to give relief to those people who need it. Enforcing moratorium as a blanket rule may not be the most prudent choice."

Avadhut Thali, Executive Director, Spocto Solutions Pvt ltd said that it is not only the unorganised sector that is bearing the brunt of the pandemic but the organised sector too. "The lockdown is likely to increase in many places owing to the situation, another round of Moratorium would certainly give the borrowers a great helping hand," he said.

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