Wait for the RBI to extend the moratorium on EMI loans after August 31? Here’s why it might not be

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RBI cannot extend Emi’s moratorium beyond August 31

The Reserve Bank is unlikely to extend the moratorium on repaying bank loans beyond August 31, as an extension could impact borrowers’ credit behavior without addressing the issues they face after the COVID-19 outbreak, sources said. The RBI had announced a six-month debt repayment moratorium starting March 1, 2020 to help businesses and individuals overcome financial problems caused by the disruption of normal business activities. The six-month moratorium ends on August 31.

This was only a temporary reprieve for borrowers affected by the pandemic, the sources said, adding that a longer moratorium period exceeding six months may impact borrowers ‘credit behavior and increase borrowers’ credit behavior. risks of default after resumption of scheduled payments.

It should be noted that several bankers, including the chairman of HDFC Ltd Deepak Parekh and Kotak Mahindra Bank Director-General Uday Kotak had asked RBI Governor Shaktikanta Das not to extend the moratorium as many are taking unfair advantage of the facility.

As the various containment measures put in place by the government begin to ease and economic activity accelerates, the continuation of temporary measures would not be sufficient to resolve borrowers’ cash flow problems.

A more sustainable solution was therefore needed to rebalance the debt burden of viable borrowers, both businesses and individuals, against their cash flow generation capabilities in the post-containment scenario, the sources said.

It is with the above objective that the Reserve Bank of India (RBI) recently announced a special resolution window for COVID-19 stress in the existing prudential framework for the resolution of stressed assets. It strikes a balance between protecting the interests of depositors and maintaining financial stability on the one hand, and preserving the economic value of viable businesses by providing lasting relief to businesses as well as those affected by the COVID pandemic. -19 on the other hand, the sources said.

Resolution plans to be implemented under the framework may include converting any accrued or accrued interest into another credit facility, or granting a moratorium and / or rescheduling repayments, based on an assessment of the borrower’s income stream, up to two years, the sources added.

While resolution in this framework can be invoked until December 31, 2020, credit institutions have been encouraged to strive to invoke early in eligible cases, especially for personal loans.

Thus, the concerns of borrowers must be taken into account by the resolution framework in which the moratorium is also a relief option that the borrower can avail himself of.

According to the sources, the relief for each borrower can be tailored by banks to address the specific problem the borrower faces based on need rather than having a holistic approach to dealing with the problem.

Recently, the RBI Governor said that if the loan moratorium is a temporary fix amid the foreclosure, the resolution framework should provide lasting relief to borrowers facing the stress of COVID-19.

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