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Banks likely to request Finance Ministry to extend the payment moratorium

Mumbai: FM Nirmala Sitiharaman and heads of state-run banks are set to work out ways to remove the irritants that are holding back delivery of credit to industries despite various measures from the government and the banking regulator, and review the progress of various schemes and tweak them if needed, said people familiar with the matter.

Bankers are likely to present to the minister that there is a need to extend the payment moratorium since businesses are still limping with a majority of them yet to begin operations and that norms to recognize a defaulter as bad loans need a review, said those people who did not want to be identified.

“A host of issues are on the agenda including the working capital products launched by banks and the scheme provided by the RBI, but most importantly we will take up the need for extension of moratorium with the minister,” said a banker who did not want to be identified.

Ever since the government locked down the economy in March to prevent the spread of Covid-19 virus, the central government and the Reserve Bank of India have come up with various schemes, including payment moratorium and liquidity measures to help businesses remain afloat when cash flows have dried up. The meeting would be held through a video conference.

Banks are also set to discuss with the finance minister the rolling out of the Rs 3 lakh crore MSME package and the extension of partial credit guarantee scheme to NBFCs. This meeting was earlier slated to happen on May 11.

“The department of financial services will make a presentation on the basis of credit numbers shared by banks for the last two months. Each bank has extended loans during this period through working capital or other means. The aim of this meeting is to enhance credit flows and the minister may point out various schemes that can be utilised,” said a second banker.

On March 27, the RBI allowed banks to extend a three-month moratorium on all loan payments.

On April 17, the regulator allowed a 90-day asset classification standstill on all overdue accounts as on February 29. These relaxations are set to end on May 31.

In a proposal to the RBI, banks have sought easing the bad loan recognition norms to 180 days from the current 90 days and extending the moratorium on loans and the standstill on stressed accounts by at least one more quarter.

Bankers said they will also share their feedback on the schemes that have been announced already and suggest ways to improve.

“We will also share some feedback and flag whatever suggestions we have. Ultimately the government wants credit to flow to sectors that need them and it will give us some clarity on what the minister exactly thinks,” said another PSU banker.

Banks have sought that loans extended to overdue accounts be considered under the standard category, or classified as standard restructured asset, which would lead to lower provisioning. They have also sought a one-time restructuring of all loans and a specific term loan package for sectors that are under stress due to the Covid-19 pandemic.

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