RBI’s loan restructuring was to strike a balance between depositors’ interest and maintain financial stability

The rationale and philosophy behind the one-time restructuring scheme (framework for resolution of Covid-19-related stress) is to strike a balance between the depositors’ interest and maintain financial stability, according to Reserve Bank of India (RBI) Governor Shaktikanta Das.

A balanced call

The Governor underscored that the central bank took a careful and balanced call/ decision on the framework for resolution of Covid-19-related stress.

Under the RBI’s framework for resolution of Covid-19-related stress, only those borrowers that were classified as standard and with arrears less than 30 days as of March 1are eligible for resolution.

“On the one hand, the primary concern of any banking system should be the protection of the depositors’ interest...Depositors run into crores of people whereas borrowers could be in lakhs.

“On the other hand, there is the need to maintain financial stability/ the stability of the banking sector. We don’t want a repeat of the situation which India experienced 4-5 years ago when the NPA (non-performing asset) levels of banks had gone up very steeply,” said Das in his reply to a question on restructuring from a member of the industry body, FICCI.

The Governor was replying to Bharat Hotels CMD Jyotsna Puri’s question that the two-year extension of the residual tenor of the loan, with or without payment moratorium under the framework, is not enough for the hotel industry. This should be extended to four years, she said.

Financial stability

Referring to small depositors, middle-class depositorsand retired people (who depend on interest income from bank deposits), the Governor emphasised that the interest of depositors had to be protected. Also, the aspect of financial stability of the banking sector needs to be kept in mind, he added.

The Governor observed that the central bank is also equally mindful of the fact that the pandemic has adversely impacted a large number of businesses and, particularly, businesses that have availed loans from banks. So, therefore, they also needed some relief.

“Naturally, businesses that are otherwise viable but because of temporary disruption in activity have genuine cash flow problems.

“So, the focus is to assist, to enable businesses that are otherwise viable but are facing problems in terms of cash flow drying up. The emphasis is to enable these companies to come back to normalcy and to resume their activities,” explained Das.

The Governor said both the sides (depositors and borrowers) had to be matched. And, in fact, the revival of businesses will also ensure that NPA levels will be kept low. It will also ensure a quicker economic recovery, he added.

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