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Banks to seek an extension of the moratorium on loan repayments beyond June

1) Lenders will seek an extension of the moratorium on loan repayments beyond June as part of a comprehensive package to support borrowers and revive the economy.

2) The Reserve Bank of India had on March 27 allowed banks and finance companies to offer a moratorium of three months on payment of instalments of all term loans outstanding as on March 1. This was done in light of the impact of the coronavirus disease (COVID-19). Now, subsequently, the nationwide lockdown has been extended till May 3 on Tuesday by Prime Minister Narendra Modi.

3) Senior bankers said it would get tougher for banks as the onus shifts to them to reactivate the economy. The three-month moratorium allowed to bank borrowers looks inadequate, the bankers said. Borrowers will need comprehensive support covering easing of asset quality norms, tweaking of rules for restructuring.

4) There is no way that things will limp back till the first week of June, said a private banker, adding that the moratorium should be extended for at least three more months from June.

5) A top public sector bank (PSB) executive said the issue had been under consideration and was likely to come up for discussion at a meeting of a key panel of the Indian Banks’ Association (IBA) later this week. And would be taken up with the RBI later.

6) Meanwhile, the Confederation of Indian Industry sought the inclusion of non-banking finance companies (NBFCs) under the essential services category.

“While banks are included under essential services, NBFCs are not. Therefore, they are not able to service the MSMEs (micro, small and medium enterprises) during lockdowns. NBFCs should be included in the definition of essential services,” CII said.

“One PSB official concurred with the demand, saying NBFCs played a crucial role in semi-urban and rural areas, especially in credit disbursal and collection. This is vital for spurring economic activity, which has been hit during the lockdown and will see more impact with the extension, the official said.

7) CII also sought an increase in credit limits for all regular banking accounts by 25 per cent. In the current context, one can expect delays in payments and disruptions to affect liquidity across sectors.

8) CII also asked RBI to relax Aggregate Sanctioned Credit Limit (ASCL) norms for corporates/banks for financial year 2020-21 till further notice or exclusion of up to 25 per cent of incremental borrowing from banking sector in ASCL computation.

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