As the six-month extended moratorium on loan repayments comes to an end on August 31, celebrity banker and chairman of HDFC Ltd, Deepak Parekh, has urged RBI Governor Shaktikanta Das not to further extend the moratorium on repayment of loans. In an interactive session with the RBI Governor hosted by CII, Parekh said that many repayable entities were unfairly taking advantage of the scheme and it was hurting the financial sector, especially NBFCs.
“Please do not extend the moratorium as we are seeing that even people who have the ability to pay, whether individuals or businesses, are taking advantage of this moratorium and deferring payment,” he said. said Deepak Parekh.
He added that “there are talks that there will be another three month extension, this is going to hurt us, and especially the smaller NBFCs (non-banking financial companies).”
Responding to the query, the RBI Governor said he would not be able to comment on this but took note of the suggestion.
There are growing demands to extend the facility for another three months as revenue disruption due to the COVID-19 pandemic continues as business is not as usual due to the new lockdown in various regions from the country.
Earlier in March, the RBI authorized a three-month moratorium on the repayment of all term loans due between March 1 and May 31.
On May 22, the central bank extended it until August 31, providing relief to borrowers under the full lockdown.
Parekh also suggested that the central bank should buy the bonds of financial institutions directly as it happens in some other countries.
“Globally, central banks are buying private sector bonds, junk bonds, commercial paper, whereas you have taken a position that we finance the banks and the banks buy all these instruments involving microfinance or finance companies housing,” he said. .
Meanwhile, responding to the suggestion, RBI Governor Shaktikanta Das said the law does not allow it in India.
However, he said the issuance of corporate bonds in the first quarter of the current financial year was around Rs 1 lakh crore, significantly more than the issuances in the corresponding first quarter of the previous year.
“The corporate bond market seemed to freeze in March. I think there is new life being injected into the corporate bond markets. Most of the resources went into AAA rated bonds, and they weren’t really invested in AA- and A-rated bonds,” he said.
The government has devised some schemes, including the purchase of bonds issued by struggling NBFCs and housing finance companies, and a guarantee of up to 20% of the first loss.
He said there was renewed activity even below AAA-rated bonds and the position had improved due to various liquidity injection measures taken by the central bank since February.
“I can assure you that the RBI remains vigilant, we are monitoring the situation, and as and when certain action is required, we will not hesitate to take such action.”
“You are aware of how the RBI has stepped in, to support the mutual fund industry and the RBI will always be proactive, as and when required steps, we are ready to consider,” Das said. .
Calling it the most critical step, Parekh also argued for a one-time restructuring to avoid an increase in non-performing assets (NPAs).
NPAs are expected to skyrocket to about 12-15% next year in March, Parekh said, adding that “if banks, NBFCs and HFCs are allowed to restructure, we can spare ourselves the future problem. “.
Also in 2008, when the world was hit by a global financial crisis following the insolvency of Lehman Brothers, the RBI announced a one-time loan restructuring for several sectors to help them overcome the economic difficulties.
The Association of Indian Banks (IBA) and many other bodies have been lobbying the government and the RBI for ad hoc restructuring following the massive disruption caused by the pandemic.
In June, Finance Minister Nirmala Sitharaman said the government was in talks with the RBI for a one-time restructuring of loans to help struggling businesses.
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