After PSBs, private banks also seek restructuring relief and limited moratorium

Heads of various private sector banks raised concerns about the impact on asset quality amid the second coronavirus wave led disruptions in their recent meeting with the Reserve Bank of India, according to two people in the know.

One of the private bank chiefs present in the meeting said banks have requested RBI to extend the window for one-time restructuring loans under Resolution Framework 1.0 at least until September to allow them to provide relief to more borrowers. CNBC-TV18 had earlier reported that public sector banks had sought a similar relief in their meeting with RBI. While banks had invoked restructuring for over 300 corporate accounts as of December 2020, barely 70 were implemented as of March 31, banks had earlier informed RBI. Now, with the second wave and business disruptions for borrowers with already weakened balance sheets, banks want the restructuring window to remain open.

In an interview with CNBC-TV18, Kotak Mahindra Bank's MD & CEO Uday Kotak remarked that banks needed to "grow up and start acting like adults," and not keep expecting the government or the regulator to handhold them. "Banks must be ready to take the hit on their capital when they undertake restructuring," he said. Kotak said he was not in favour of back to back forbearance, "India's financial sector must stand on its own feet. To expect constant forbearance and extend and pretend is not healthy...It will weaken not only the financial sector's stability in India, but also in the eyes of global investors," he remarked. Kotak, however, seems to be in a minority among his peers, who have sought to restructure relief from the regulator.

The RBI Governor held a meeting with the MD & CEOs of select Private Sector Banks on Tuesday, along with Deputy Governors MK Jain, Michael Patra, M Rajeshwar Rao and T Rabi Sankar. In a statement after the meeting, RBI said that the Governor recognised the crucial role played by the private sector banks as important stakeholders in the Indian banking sector. “He impressed upon the banks to quickly and swiftly implement the measures announced by RBI on May 5, 2021, in right earnest. He also advised the banks to ensure continuity in the provision of various financial services including credit facilities to individuals and businesses in the face of challenges brought on by the pandemic. He also urged them to continue focussing on efforts to further strengthen their balance sheets proactively,” the statement read.

While public banks did not seek a moratorium for borrowers in their meeting with RBI, a handful of private banks did bring up the issue, said one of the people quoted earlier.

“Some want a limited window for moratorium, maybe RBI could allow a similar moratorium as last year for repayments due between April and June, which is when the disruption is likely to be the most,” said a person present at the meeting.

The meeting also saw discussions on assessment of current economic situation and the state of the banking sector, credit flows to different segments of the economy, particularly to small borrowers, MSMEs, etc, progress in the implementation of Covid Resolution Framework 1.0, RBI said.

Monetary policy transmission and liquidity scenario, as well as the implementation of various Covid-related policy measures taken by RBI were also part of the agenda.

Meanwhile, various exiting reliefs already provided by RBI on May 5 is expected to limit the increase in bad loans, including restructuring for individual and MSME borrowers. In addition, transfer of loans to the National Asset Reconstruction Company, when it does happen, is also expected to help banks clean up their balance sheet.