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Sep 4

Centre Considering Loan Extension Term Until December Due to COVID-19 Adverse Impact

The COVID-19 pandemic has some worse ever influences on every segment of our socio-economic system. The banking sector in India is currently going through terrible stress due to the loan moratorium imposed by the Government. Many have even raised the issue of uncertainty furnishing toward any losses due to the pandemic. At present, the loan moratorium deadline is up to August 31, 2020. The Government of India has put on hold the matter of loan moratorium date extension.

According to a government official, it is not yet decided regarding date extension issue, however, there are continuous discussions with RBI and other stakeholders being held related the same. The RBI has sanctioned the loan extension on May 22, for another three months till the end of August considering the probable lockdown extension. The basic idea of such an extension was to help distressed borrowers who were the victims of income loss as a consequence of COVID-19.

The banking sector does not seem in favour of loan moratorium extension as they fear that further extension may have a substantial toll on the quality of banking service. In case the extension takes place, the identification of bad loans and their provisioning would face great difficulty to happen before the end of the next financial year. This may result in the possibility of not providing funds into the public sector banks for capitalization.

The global rating agency, Standard and Poor’s predicts a spike of 14 percent in the financial year 2021 from around 8.5 percent in the financial year 2020 for gross non-performing assets (NPAs) of Indian banks. The agency report also states that the credit flows and ultimately, the economy might get severely disturbed as the COVID-19 pandemic upset the recovery of India’s banking sector by years.

The RBI governor expressed his concern regarding the need for preparation for hard times as a possibility of spike for NPAs on account of COVID-19. He also stressed the need to increase the capital base of the bank to build a buffer.

There is a steep downfall of total gross NPAs of banks from around 9.1 percent in March last year to 8.3 percent in the same period this year. In recent months, the NPA level has come down but that tendency is unexpected to continue due to the pandemic. However, before the COVID-19 pandemic in December last year, RBI had predicted NPAs to fasten to 9.9 percent by September.

The RBI governor has asked banks to give stress on developing buffers and risk management. These measures, which are already under process, could help the occurrence of a second NPA wave to handle for Indian banks. Inorder to have control over the economic situation and to help existing borrowers, the central government is considering the loan moratorium extension till December-end. This step will prove to be a great relief for the stressed citizens worried about debts and decreased sources of income. Apply Now :

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