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PSU banks ask for second restructuring window, lower provisions

Public sector bankers have asked Reserve Bank of India (RBI) to extend a second round of restructuring for all companies with a reduced provision rate of 5% versus 10% done last year.

In a video conference with RBI governor Shaktikanta Das CEOs of all 12 public sector banks were unanimous in their request for a second round of restructuring as the second wave of the Covid 19 pandemic has hit both lives and livelihoods more severely.

“Restructuring has been extended to micro and small enterprises and individuals upto an outstanding amount of Rs 25 crore. But the need is much more because the damage around us is immense. Businesswise we have seen collection efficiencies drop sharply and companies, our branches are working with 50% staff and reaching customers for recovery is difficult. The loss of lives has added to the complexities,” said one of person present in the meeting.

Governor Das had called a meeting with public sector bank to listen to their suggestions on tackling the crisis caused by the second wave of Covid 19.

The meeting was also attended by deputy governors M. K. Jain, M. Rajeswar Rao, Michael Patra and T. Rabi Sankar.

Bankers said Das heard the suggestions from them and has asked for a consolidated list which will most likely be prepared by the Indian Banks’ Association (IBA) and sent to the RBI within a week. Banks may also separately give their own suggestions.

“The main points of todays discussions were restructuring and provisioning. We think we are in a worse situation than we were last year and it is likely to be a tough year again. We need companies to survive for which restructuring is necessary,” said a second person part of the meeting.

On May 5 governor Das had announced a second round of restructuring for individuals and MSME borrowers who did not avail the facility in the previous round for loans up to Rs 25 crore. Banks have time till September 30 to work out for these accounts.

Last fiscal amid the first wave of the Covid 19 pandemic which induced a national lockdown, RBI had allowed a one time restructuring for loans to be invoked by December 31.

RBI had asked to make 10% provision on these restructured loans, lower than the 15% required for NPAs.

However, the response to this RBI window was limited as many companies used the central bank’s moratorium on interest payment until September 2020 to converse cash and escape restructuring.

Unlike last time bankers are not seeking a moratorium on loans this time but want a straight restructuring. Also, banks want RBI to give companies more time to complete their funded internal term loans (FITL) by end of September 2021 rather than end of March 2021 as it is a normal practice to repay at the end of the fiscal.

“Another moratorium is not needed because it could adversely impact credit culture. But restructuring is necessary and we have asked to reduce provision requirements on restructured loans to 5% to help us conserve capital. We need these immunity boosters even as we help the economy get back on its feet,” said the person cited above.

Governor Das also took account of the banks’ progress in loans to the medical sector for which the RBI had introduced an on-tap liquidity window of ₹50,000 crore, with a tenor of up to three years, at the repo rate until March 2022.

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