PNB chief calls for change in RBI\'s loan restructuring scheme

PNB chief calls for change in RBI's loan restructuring scheme

Stressed entities, especially MSMEs, that have defaulted for more than 30 days should be given an opportunity for loan restructuring, says PNB MD and CEO S S Mallikarjuna Rao

RBI has allowed banks to do a one-time restructuring of corporate and personal loans

Punjab National Bank (PNB) Managing Director (MD) and Chief Executive Officer (CEO) S S Mallikarjuna Rao has said that stressed companies, especially MSMEs (micro, small, and medium enterprises), that have defaulted for more than 30 days should be granted benefits of loan restructuring scheme. The move would help stressed entities that have been impacted by COVID-19 pandemic.

"The economy has been passing through tough times in the past two years, especially MSMEs (micro, small, and medium enterprises). We have seen that repayments generally came at the last minute and a majority of stressed accounts wouldn't slip into NPAs (non-performing assets) as the money is paid before it. We need to look at such customers too," Rao told Business Standard.

Rao said that the loan recast scheme has been denied to entities, including MSMEs with exposure of above Rs 25 crore, who have defaulted on payments of more than 30 days. He said that the central bank need to look into these issues, and a special case should be made for such accounts.

The Reserve Bank of India (RBI) on Thursday allowed banks to do a one-time restructuring of corporate and personal loans in the wake of massive disruptions caused by the coronavirus-induced nationwide lockdown. The decision will help banks maintain their asset quality while weathering the impact of coronavirus pandemic. The central bank has also set an expert committee under the chairmanship of K V Kamath that will make recommendations to the central bank on the required financial parameters, along with the sector-specific benchmark ranges for such parameters to be factored into resolution plans.

As per RBI, the benefit of restructuring will be provided to corporates classified as standard accounts and not in default for more than 30 days with any lending institutions as on March 1, 2020. The apex bank has asked banks to recognise incipient stress in loan accounts, by classifying such assets as special mention accounts (SMA), before it becomes an NPA.  SMA has been categorised as SMA-0, SMA-1 and SMA-2 accounts based on the period of overdue amount. SMA-0 are those accounts in which loan repayments are wholly or partly overdue for a period of up to 30 days, SMA-1 for period between 31 and 60 days, and SMA-2 for 61-90 days.

According to rating agency CRISIL, loan recast scheme will help banks keep bad loans from reaching a two-decade high of 11.5 per cent, ratings agency CRISIL said. The primary beneficiaries of loan restructuring would be corporate and retails loan accounts with exposures below Rs 500 crore, it said.

By Chitranjan Kumar