The credit moratorium ends on Monday

MUMBAI : The Reserve Bank of India will not extend the moratorium on loan repayment beyond August 31, said people aware of the matter.

While an extension was actively being considered, the RBI decided against it because it had concerns about changes in borrowers’ lending behavior and could increase the risk of loan defaults, the aforementioned people said on condition of anonymity.

Initiating a one-time restructuring of stressed accounts provided a more permanent solution to tackling bad loans in the long run, said those familiar with the RBI mindset.

On Thursday, RBI Governor Shatikanta Das said the moratorium on loans was a temporary fix to the lockdown, while a resolution framework would provide permanent relief to borrowers facing Covid stress.

Bankers had also voiced their discomfort at extending the moratorium beyond the deadline. Leading bankers like the chairman of Housing Development Finance Corp. Deepak Parekh, chairman of SBI Rajnish Kumar and MD of Kotak Mahindra Bank, Uday Kotak, had stated that some solvent borrowers are taking advantage of the easing and therefore the moratorium should not be extended.

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In March, the RBI introduced the credit moratorium to relieve borrowers and allow the continuity of viable businesses affected by the Covid-19 pandemic. Almost half of the customers, who account for around half of the outstanding bank loans, have made use of the service, according to RBI. The central bank had initially approved a moratorium for the three months ending May 31, but later extended it to the end of August.

Later, the RBI allowed a revaluation of the debt for both corporate and retail customers. Lenders can extend the repayment deadline for a maximum of two years, which allows for breathing space in a situation where Covid-19 has made million unemployed and limits their ability to repay existing debts.

The RBI had also announced the establishment of a panel of experts under KV Kamath to propose financial parameters for the resolution of strained assets in the midst of the crisis. The panel is expected to present its recommendations to the RBI, which it will notify along with any changes within 30 days.

As part of the resolution framework, RBI has allowed any accrued or accrued interest to be converted to another credit facility or a moratorium and / or repayment rescheduling based on an assessment of the borrower’s income streams for up to two years.

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