Banks seek extension of COVID-related restructuring amid surge in coronavirus cases

“We have asked RBI to first extend the restructuring window by another year for all categories of borrowers. MSMEs, corporate and even retail, because some who had not sought restructuring in the last two rounds may need support now,” said a banking executive directly in the know.

Banks have also sought another extension in the deadline for corporate borrowers to meet key financial milestones under the Kamath Committee recommendations for COVID-related restructuring, said one of the people quoted earlier.

“Future Group has already defaulted in December under that one-time restructuring scheme, and there will be more defaults if there is no relief provided because these businesses haven’t fully recovered from the last two years and they are not in a position to immediately start servicing debt,” this person said.

The COVID-related restructuring scheme was first announced by RBI in August 2020 for both retail and corporate borrowers, and was then extended in May last year after a resurgence in COVID cases. The regulator had allowed banks to give a two-year moratorium in repayments under the restructuring scheme.

Banks have now asked for yet another 12-month moratorium for borrowers who have availed of the scheme.

“With the increased spread of the new COVID-19 variant, i.e. Omicron, there is a high possibility of the occurrence of a third wave. As banks restructured most of these loans with a moratorium of up to 12 months, this book is likely to start exiting the moratorium from Q4 FY2022 and Q1 FY2023. Therefore, a third wave poses high risk to the performance of the borrowers that were impacted by the previous waves and hence poses a risk to the improving trend of asset quality, profitability, and solvency,” said Anil Gupta, Vice President of Financial Sector Ratings, at ICRA Ratings.

“With incremental restructuring under COVID 2.0, the overall standard restructured loan book for banks increased to 2.9 percent of standard advances as on September 30, 2021 (2.0 percent as on June 30, 2021). Most of this restructuring includes borrowers impacted by COVID 1.0 and 2.0. Restructuring under COVID 1.0 is estimated at 34 percent (or Rs 1.0 trillion) of the total standard restructured loan book of Rs 2.85 trillion for banks as on September 30, 2021, while restructuring under COVID 2.0 is estimated at 42 percent or Rs1.2 trillion. The balance comprised micro, small & medium enterprise (MSME) and other restructuring,” ICRA had said in a January 6 note. ​