Will Moratorium Get Extended for Stressed Sectors?

The loan moratorium has been extended twice covering a total of six months period now, i.e. from March 2020 until August 2020. Many banks, non-banking financial institutions, and mortgage lenders have offered moratoriums to individuals and businesses who have requested the same. However, the exponential increase in the number of COVID-19 cases in the country over the recent past has raised concerns speculating a further extension of the moratorium period.

The speculations state that the Reserve Bank of India (RBI) is probable to extend the moratorium over another cycle for business loans taken by companies from the stressed sectors, such as aviation and hospitality. If the speculations are to come true, a set of terms and conditions are to be laid down by the RBI and government soon so that they are conveyed by 31 August 2020.

Since the lockdown and the pandemic duo have been forcing people to stay at home to keep themselves safe, the aviation, automobile, and hospitality industries have been suffering a lot. Many employees from these sectors have lost their jobs, and many businesses have no choice but to shut their operations. Shaktikanta Das, the governor of RBI, is trying to provide relief to these sectors in the form of moratorium extension.

The stressed sectors are identified based on the impact assessment conducted for every sector and borrower segments. The data regarding repayments and cash flow will be collated starting from the time when the lockdown was announced in March to figure out the challenges faced by these companies/sectors. 

Also Read: 5 Factors About COVID-19 Personal Loans You Should Know

Looking at the issue from another perspective, providing another extension for these sectors may not fully serve the purpose. Though our Prime Minister has announced the phase of unlocking, there are opinions from renowned research labs saying the pandemic could be airborne. Such statements are inducing additional fear in public. Consequently, there may not be any brighter days for the hospitality and tourism industry any soon. The same goes for the airlines as well.

We know that loan moratorium is only a delay in the instalment payments and not the suspension of repayment for this period. Also, the borrowers need to pay the interest calculated over the moratorium period as well. Therefore, the further extension of the moratorium for these sectors can only delay the crisis and cannot prevent it. Over the April-June quarter, banks have lost an income of Rs.28.3 trillion to moratorium. 

There is this danger of not knowing the exact damage caused by the pandemic and the real condition of the affected firms if the moratorium is going to be extended. The government and RBI are considering the possible outcomes of letting the banks restructure company loans without having to separate the funds to cover the potential losses as an exemption. This process can help categorise the stress levels—Stress 1, Stress 2, or NPA.

On the other hand, the moratorium for individual borrowers may not be extended anymore.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in