Finance minister Nirmala Sitharaman will focus on the implementation of a one-time loan restructuring programme proposed by the Reserve Bank of India (RBI) and review the progress of a Rs 3-lakh-crore credit guarantee scheme for small and medium businesses and liquidity-enhancing steps for non-banking financial companies (NBFCs) when she meets top executives of banks and shadow lenders on Thursday.
A top source told FE deliberations will centre around not just ways to enable businesses and individuals to “avail of the revival framework on the basis of viability” but also potential issues to be faced by the banks while implementing the scheme. It will also discuss the identification of the eligible candidates for loan restructuring and expeditious initiation of the process.
The meeting comes ahead of the expected announcement of the KV Kamath-led panel’s recommendations on eligibility parameters for the restructuring of loans to soften the blow to both borrowers and the lenders in the wake of the pandemic.
Earlier this month, the RBI extended a special window for lenders to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances. RBI governor Shaktikanta Das has said a resolution framework for Covid-19-related stressed accounts will be finalised by September 6.
In its Financial Stability Report, the RBI has forecast that gross non-performing assets (NPAs) may jump from 8.5% at the end of March 2020 to 12.5%, a 20-year peak, by March 2021. However, the NPA level may shoot to 14.7% by March 2021 in case of a severity of economic stress.
As for the credit guarantee programme, the meeting will focus on the response of beneficiaries to the Emergency Credit Line Guarantee Scheme (ECLGS) after its scope was expanded recently to include individuals, along with a wider pool of businesses. Banks’ loan disbursement to mostly MSMEs under the ECLGS exceeded Rs 1 lakh crore in just over two-and-a-half months of its rollout on June 1. Under this, the Centre has pledged full guarantee for up to 20% extra, collateral-free working capital loans.
Another credit guarantee scheme for subordinate debt of Rs 20,000 crore, meant for MSMEs, will also be deliberated on in Thursday’s meeting.
The minister will also review the progress of two schemes meant to facilitate Rs 75,000-crore liquidity for NBFCs. Under these, the government has approved the partial credit guarantee scheme (PCGS) 2.0 worth Rs 45,000 crore to improve liquidity for low-rated shadow lenders, and eased certain criteria for the pooled purchase of NBFC assets by state-run banks under the existing PCGS 1.0. It has also cleared a special liquidity scheme worth Rs 30,000 crore. These schemes for MSMEs and NBFCs were part of the Rs 21-lakh-crore package announced by Sitharaman in May to soften the blow of the pandemic.
As for the loan restructuring, banks have already started internal processes to gauge the extent of the likely loan restructuring exercise. For instance, Punjab National Bank (PNB) saw about 5-6% of its loan book, or between Rs 36,000 crore and Rs 43,000 crore, getting recast in FY21, its managing director SS Mallikarjuna Rao said last week. Of course, a clearer picture will emerge after the Kamath panel prescribes the contours of the recast scheme, Rao added. The current repayment moratorium will expire on Monday after six months.