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The Reserve Bank of India (RBI) may extend the six-month loan repayment moratorium beyond the August 31, 2020 deadline for select sectors, according to State Bank of India (SBI) Chairman Rajnish Kumar.
The chief of India’s largest bank expects a calibrated response from the RBI in this regard. He was speaking at SBI’s 7th Banking & Economics conclave.
To mitigate the burden of debt servicing brought about by disruptions on account of the fallout of the Covid-19 pandemic, the RBI, on March 27, 2020, announced measures such as the moratorium on term loans, deferment of interest on working capital facilities and easing of working capital financing.
Kumar observed that the six-month loan repayment moratorium is virtually a restructuring of loans.
It may be pertinent to note here that many banks made ‘Covid-19’ related provisions in their fourth-quarter results of FY2020 on the loan accounts that opted for repayment moratorium.
Kumar emphasised that banks have already absorbed substantial shock via loan repayment moratorium.
To a question about the possibility of bad loans building up once the loan repayment moratorium ends, Kumar replied that he was not overly worried about this.
Smart recovery in June
While the economic disruption caused by the Covid-19 pandemic is of gigantic proportions, Kumar said the situation seems to be gradually improving over the last couple of months, with June seeing a smart recovery due to the phased lifting of lockdown. The impact of the pandemic has been severe in industrialised states such as Maharashtra and Tamil Nadu, he added.
The SBI chief said he will wait for a few more months to see if the recovery is sustained.
Kumar felt that a lot of money needs to be spent on infrastructure and construction sectors so that jobs and demand can be created. Hence, government intervention is required in this regard.
On his outlook for interest rates, the SBI chief said India is already in a soft interest rate regime. However, this will not lead to a revival of investment demand.
He felt that besides debt capital, what is needed is equity capital.
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