RBI weighs loan revamp proposal

MUMBAI: Lenders are pinning hopes on the Reserve Bank of India’s (RBI) approval to a loan restructuring scheme for corporates to manage asset quality concerns as the government has agreed to a loan-guarantee proposal for small businesses.

The scheme, proposed by the lenders through the Indian Banks’ Association (IBA), is being considered by the central bank, said two people aware of the development.

Bankers have sought the creation of a bad bank, which will act in tandem with the debt recast programme, if approved.

Bankers expect asset quality to take a beating once the moratorium ends. Rating agency Crisil estimates that bad loans will rise to 11-11.5% by March 2021 from the 9.6% expected for FY20.

“Companies that are stressed but still not non-performing would come under the debt recast scheme, while bad loans would be transferred to the bad bank. For the bad bank, we are reviving a plan already made under the Sashakt project by the government in 2018,” said one of the two people mentioned above. The plan under Project Sashakt was to set up an asset management committee and multiple sectorspecific alternative investment funds to invest in stressed assets.

As part of the relief package for micro, small, and medium enterprises (MSME) announced on Wednesday, the government said it would backstop loans of ₹3 lakh crore for MSMEs. These loans would be applicable to small businesses with up to ₹100 crore sales or with an outstanding loan of up to ₹25 crore.

“The MSME scheme was also part of the proposal made by the bankers to the government. We are awaiting some scheme for larger corporates, many of whom might face difficulties in servicing their loans,” said the person quoted above.