The Reserve Bank of India (RBI) may extend the loan moratorium facility by another three months, according to a report by State Bank of India (SBI) economists.
“With the lockdown now extended up to May 31, we expect RBI to extend the moratorium by three months more. This will imply companies need not pay till August 31,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI in a report titled ‘Will supply create its own Godot/Demand? Over to RBI now!’
Such a step will still imply almost minimal possibility of companies being able to service their interest liabilities in September, failing which the account might be classified NPA (non-performing assets) as per extant norms, the report said.
“The RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of 90-day norm,” the report said.
The RBI had initially announced the moratorium for dues falling March 1 and May 31. This was to help the borrowers from across the segments to tide over the crisis phase. But with lockdown period being extended again, companies are still not in a position to resume their businesses yet. Hence, extension of the loan moratorium becomes necessary.
In a recent meeting with RBI, banks, NBFCs and MFIs too had made a case for extending the moratorium period beyond 31 May considering the difficulties in the operating environment for borrower firms. According to a report by rating agency, ICRA, about 328 companies have applied with banks for moratorium scheme to conserve capital.
Banks were initially hesitant to extend the moratorium facility to NBFCs even though NBFCs had offered the same to their customers. This created a temporary cash flow mismatch for these companies. Later majority banks agreed to extend the scheme to NBFCs.
Economic package not to help to boost demand
Of the Rs 20 lakh crore package, the direct fiscal impact of the reforms however comes to around only Rs 2.0 lakh crore (1 percent of GDP), SBI report said. “The package does not do much to boost consumption in short term and that could act as a drag on growth,” the report said.
On may 17, Goldman Sachs too had said that the economic package announced by the Narendra Modi government over the past few days to help economic recovery is unlikely to have an immediate impact on growth.Godldman Sachs now estimates real GDP to fall by 5 percent in fiscal year 2021.
“There have been a series of structural reform announcements across several sectors over the past few days. These reforms are more medium-term in nature, and we therefore do not expect these to have an immediate impact on reviving growth. We will continue to monitor their implementation to gauge their effect on the medium-term outlook for the Indian economy,” said Goldman Sachs in a report.
The -5 percent growth for FY21 would be deeper compared to all “recessions” India has ever experienced, Goldman Sachs said.