Centre may extend loan moratorium till November

NEW DELHI: With no signs of a fast enough recovery in the first half of this fiscal year, the Centre is considering a request from bankers to extend the loan moratorium until the end of November.

According to sources, some bankers believe that there may be a major spike in non-performing asset (NPA) otherwise.  

“Some of the bankers have suggested that the period of moratorium should be extended till November since they do not see any sharp recovery in the September quarter. The (Finance) Ministry is examining the proposal,” a senior official from the Finance Ministry said.

According to the initial announcement, the moratorium was to be be for the period of March to May. However, an extension to August 31 has already been given.

Bankers expect that a sharp rise in the number of bad loans is likely.

And, with no restructuring order so far from the central bank, they feel that the only way out is extending the moratorium by another three months.

Although there is no official word on the worth of loans under moratorium, according to Soumya Kanti Ghosh, chief economic advisor to State Bank of India, the figure could be around 35-40 per cent of the average portfolio.

“...the moratorium has prevented any loan-account from a downgrade and helped the banking industry in reining in fresh slippages. But the real picture will emerge after the September quarter,” Ghosh had said in an SBI Ecowrap report dated June 29.

According to internal assessment of the finance ministry, about Rs 40 lakh crore of credit is under moratorium.

Given the pace of the economic revival, experts fear that even in the best case scenario, only seventy five per cent of borrowers will be able to repay their loans by August 31. This would mean that loans worth Rs 10 lakh crore are under risk of turning NPA. 

Possible solutions include either a one-time restructuring of debt or extending the moratorium. “The ministry is aware of the problem faced by businesses and individuals.

"Negotiations with the RBI for a one-time restructuring is on. However, by the end of July, if there is a requirement, bankers have said there is a fair case for the extension,” finance ministry officials said.