#OTR

#restructuring

#loanrestructuring

K V Kamath committee’s recommendations on OTR to RBI, evaluates current banks/ FI lending situation and reflects that Approx. 72% of total lending (more than 50 lacs Crores) is stressed and approx. 50% of total portfolio is in Red zone. This is alarming to everyone including bankers.

Come September2020, on the one hand we all are caught in corona’s community spread situation. More than 1 lakh Covid infection cases per day are being reported, now. News of losing near and dear ones is frequent on social media group. Friends and Relatives are corona positive and there are reasons for being more fearful and hopeful at the same time. Vaccine announcement is yet to come.

Business wise, it’s more compulsive to go out and do it than before. All moratorium period (April 20 to August) amount has become due to be paid in this month only. Moratorium period is not being extended. This month’s instalments coupled with interest of ECL loan are also to be paid. Interest on “Interest not paid during the moratorium” is also to be paid in this month. Business is still to initiate on revival and needs more money for operating cycle. That is again a cause of concern. Debtors are not paying, more difficulty on stock liquidation. ECL (Emergency Credit Line) is only to support on payment of such loan liabilities. What about Other Overheads, Taxes and Operating exp. Bankers are floating @ unprecedented liquidity position and are risk averse more than before. Questioning fundamentals of business, not topping up the facilities and expecting businesses to revive on their own and show numbers. Businesses are in vicious cycle.

Govt/ RBI’s OTR of loan is timely and God-Sent to allow maximum 2 years of moratorium but it shouldn’t not taken self assumed. Every business needs to be built a case to claim it and it will also take some time to become operational in the period of uncertainties. A lot of documentation and procedural requirements ahead.

I see this scheme helping more to banking and economy than the businesses and particularly to SME owners. If this kind of scheme doesn’t get implemented sooner than what we think, we can see upsurge in defaults and business may be resolving not to pay at all. That situation is more dangerous to banking , business and over all economy . 72% stressed sector/ portfolio is an alarming situation . Business needs time, which govt has already give through this scheme. Banking system needs to deliver it sooner than they are thinking. They have other options also, like recouping the existing facilities, providing 1-2 years moratorium for all recent / new lending and relieving bit in Security Ask, where they have more than 150% coverage against existing outstanding and not the original sanction. Having disproportionate liquid security for SME lending may be seen as SIN for at least 2 years and immediate relief should come to rescue, on this.

Banking sector will also need relaxation in prudential norms for at least 2 years. Basel norms compliance may not be best for coming 2 years. This may be reviewed and reformed . Above all it’s short term problem , which we all have to solve. Businesses shouldn’t be pushed to a situation where they resolve not to pay and resolve it become NPA. BEWARE………