End of Loan Moratorium

 The Reserve Bank of India will not extend the moratorium on loan repayments after it ends on 31
August, people aware of the matter said.

 In March, RBI introduced the loan moratorium to provide relief to borrowers and enable continuity
of viable businesses impacted by covid-19 pandemic. The central bank had initially allowed
moratorium for the three months ended 31 May but later extended it till end-August.

 Later, RBI allowed debt recast for both corporate and retail borrowers. Lenders can extend the
repayment period by a maximum of two years, allowing respite in a situation where covid-19 has
left millions jobless, curtailing their ability to repay existing debt.

 While an extension was under active consideration, RBI decided against it as it was concerned
about changes in credit behaviour it could induce among borrowers and increase the risk of loan
defaults.

 On Thursday, RBI governor Shatikanta Das said that the moratorium on loans was a temporary
solution in the context of the lockdown, while a resolution framework will provide durable relief to
borrowers facing covid-related stress.

 Bankers had also expressed their discomfort with extending the moratorium beyond the deadline.
Leading bankers like said that some borrowers who have the ability to pay are taking advantage of
the relaxation and hence, the moratorium should not be extended.

 RBI’s recent financial stability report showed the number of retail and small businesses that had
availed of the moratorium was much higher than such requests from corporate borrowers as on 30
April.

 The data also showed state-run banks, small finance banks and non-banking financial companies
had reported a higher proportion of retail loans under moratorium than private sector banks and
foreign banks.

 State-run banks saw nearly 80% of their retail borrowers availing of the moratorium as compared to
73.2% in the case of small finance banks and 45.9% in the case of non-banking financial
companies. To be sure, these numbers have come down over the past six months.

 Bankers agree loans to borrowers such as house helps, drivers and textile weavers will require
restructuring as their work has been impacted by the pandemic.

Reference: https://www.livemint.com/industry/banking/retail-loans-worry-banks-
11598663752122.html