Analysts say need one-time loan restructuring, but bankers say wait for lockdown to end

"We will see deposits rate falling in coming months, but will not be in big quantum. There could be another 40-50 basis points cut in repo rate," Rajkiran Rai of Union Bank said.

Published: May 22, 2020
Loan Restructuring_RBI_SM Photo by NOAH SEELAM/AFP via Getty Images

As expected by the Street, the Monetary Policy Committee (MPC) cut repo rate by another 40 basis points to 4 percent and kept accommodative stance.

The MPC is of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress, while the inflation outlook is highly uncertain.

The Reserve Bank of India allowed another three-month extension on loan installments, taking total moratorium period to six months till August 31, saying the accumulated interest for this moratorium period can be converted into a term loan.

"The thus-converted term loan does not have to be repaid immediately after moratorium ends. Individual banks have the right to take a decision on whether this will be allowed for all borrowers. It is only an enabling provision and not a mandate," the RBI Governor, Shaktikanta Das said.

Experts feel this could add more pressure on banks in terms of stressed assets, so the RBI should announce one-time loan restructuring scheme but bankers are disagreed as they want to wait for the full economy to open.

"The repo rate cut will not help the economy to a greater extent after some point of time. Instead, there should be one-time loan restructuring for commercial real estate, select corporates etc which are facing pressure. More transmission and sector perspective measures need to be taken to revive the economy," Sonal Varma, Chief economist for India and Asia ex-Japan at Nomura told CNBC-TV18.

KK Mistry, Vice Chairman and CEO at HDFC also feels rate cut and six-month moratorium are good things, saying but not many borrowers have taken the advantage. "Overall I think only 20-22 percent people have taken advantage of the moratorium which could include those how fear of job loss, pay cuts etc."

I think there should be one time loan restructuring for sectors which are badly hit like hospitality, real estate etc.

But, Rajkiran Rai, MD and CEO at Union Bank of India feels it is premature to announce loan restructuring scheme.

"Rather we need to wait for economy to open. Once the businesses open then we will come to know where the actual need of restructuring of corporate loans," he said in an interview to CNBC-TV18.

SS Mallikarjuna Rao, MD & CEO of Punjab National Bank also agreed with Rai saying there is no need of loan restructuring scheme now.

"Excess liquidity in the banking system and fall in money market rates and some lending rates are not the barometers of improving financial conditions in this situation. Liquidity needs to reach every part of the economy even when it has become difficult to distinguish between good credit and bad credit. We believe that the RBI/public sector will need to stand ready to become lender of last resort, not just for banks, but all financial institutions," Prithviraj Srinivas, Economist at Axis Capital told Moneycontrol.

Some analysts feel with the RBI measures, all NPAs may get reported in the next financial year, but Rajkiran Rai said NPAs will start reflecting from September quarter itself.

"If everybody used Funded Interest Term Loan (FITL) then will not be reflected in bank accounts. The repayment of term loans will start from September onwards," he added.

After earlier repo rate cuts, the transmission has been happening, and saving and deposit rates already starting coming down. The RBI Governor Das himself said the monetary policy transmission has continued to improve.

"We will see deposits rate falling in coming months, but will not be in big quantum. There could be another 40-50 basis points cut in repo rate," Rajkiran Rai of Union Bank said.

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