RBI considers extension of loan moratorium for stressed sectors

The Reserve Bank of India (RBI) may allow lenders to offer companies in stressed sectors such as aviation, automobiles and hospitality the option to pause loan repayments even after the six-month moratorium ends on 31 August.

According to sources, the central bank has been conducting an impact assessment of sectors and borrower segments by accumulating information on repayments and cash flows of borrowers since the lockdown was announced in March to get a better understanding of the challenges faced by borrowers.

The banking regulator is trying to provide relief to struggling businesses amid the Covid pandemic, driving down demand many of the industries to a trickle.

The prolonged lockdown has also forced many firms to shut down operations, leaving millions of people jobless and pushing the economy toward its worst contraction. Due to these reasons, RBI could be considering extension of moratorium for certain sectors like automobile, hospitality, etc. However, it is unlikely to be extended to individual borrowers.

According to reports by banks and Non-Banking Financial Companies (NBFCs), around 29% of loans given by banks and mortgage lenders and 59% of loans by non-bank lenders were under moratorium between April and June.

It may be noted that both – the government as well as RBI are considering allowing banks to restructure company loans without having to set aside funds to cover potential losses as a one-time exemption.