Moratorium of loans ending- Urgent need to extend moratorium or restructure loans
The Government had announced Moratorium of loans till 31, 2020 and the deadline is approaching fast. The Government had anticipated that Covid pandemic would end by this time and both business & life would normalise but things have not gone the way as predicted. The Covid pandemic has not yet peaked and 32000+ new cases are being reported every day in our country. The migratory labour has not yet made up its mind to return and the manufacturing & construction sector is suffering due to non- availability of skilled labour. The wholesale & retail business is yet to return back to normalcy as there is liquidity crisis in all spheres. The employment scenario is most painful & disturbing as due to closure & slowdown in all sectors, retrenchment has become the order of the day. Unemployment is rampant throughout the world and employment generation is unthinkable. The Work at Home culture brought in by the Covid pandemic has blasted the real estate leasing sector. In these adverse circumstances, it seems impossible for the entrepreneurs/ businesses to pay 6 due monthly instalments with due interest. If not properly addressed, this issue will result in financial pandemonium and NPA’s in due course of time across the country.
It is equally true that the financial health of the Banks would be adversely affected due to non-receipt of due instalments within the stipulated time. Thus, this calls for timely intervention by the Government to safeguard the interests of the Banks as well as the Borrowers at large. There are only 2 alternatives- one is loan moratorium extension and the other is one-time restructuring of loans. If steps are not taken well in advance, there is likelihood of an acute financial crisis which will not be in the wider interest of our Economy.
The Government & the RBI should rise to the need of the hour and announce relief measures as early as possible as the deadline for the loan moratorium is fast approaching on August 31. As things transpire, there is likelihood that the Centre and the Reserve Bank of India may go for one-time restructuring rather than another extension in loan moratorium. Detailed deliberations between the government and the RBI are required to work up the details of the relief measures to be undertaken for all sectors particularly for troubled sectors like tourism, hospitality, real estate & the MSME’s which have borne the worst impact due to the Covid-19 induced lockdown.
The conviction of the Government that the Economy is opening up is ill-founded. In reality both the demand and the production are at its lowest ebb and it does not seem possible that the Borrowers of any sector would be able to pay their due EMIs even after the stipulated time. Moreover, those Borrowers who had not availed the loan moratoriums, due to any reason, are now finding it very difficult as their Cash Reserves have since now exhausted.
It is true that the government was concerned with the issue of cash crunch faced particularly by MSMEs and had also given a 100% guarantees for collateral-free loans for MSMEs of up to Rs 3 lakh crores out of which Rs 1.20 lakh crore is already sanctioned. Under other schemes floated by public sector banks called COVID-19 emergency credit line, loans over Rs 40,000 crores had been sanctioned. The steps taken by the Government are praiseworthy but a lot more has to be done. The present requirement is to give sector-specific relief to the worst effected sectors and one-time restructuring of all affected areas.
The Banks are opposed to the idea of extending moratorium after the stipulated period. SBI chairman has recently commented on the recent developments thus:
“An across-the-board moratorium is not required anymore. However, certain sectors may need some relief and that is where, based on the data available with RBI, there will be a calibrated response”. The Finance Minister has also indicated that discussions were underway between the finance ministry and the central bank on providing a one-time restructuring for Covid-19 impacted businesses. However, the central bank is worried of high non-performing assets (NPAs) & capital erosion due to Covid-19 induced lockdown.
It is imperative for the Government to fund the public & private sector banks to enable them to help the ailing sectors. The government should infuse capital in banks to overcome the capital erosion due to NPAs and the poor state of economy due to Covid pandemic. The interest of the industry & the businesses, which are the vehicles of our growth, is Supreme and the Government should express the said commitment to them by announcing the measures for their honourable growth & survival. It is opportune time for the government to step in to reduce the negative effects of the global economic downturn by saving the Borrowers.