Banks to Consider Restructuring Benefit for Loans Over 10 Lakh Crore

Banks to Consider Restructuring Benefit for Loans Over Rs.10 Lakh Crore
Finance Minister Nirmala Sitharaman has asked the banks and NBFCs to consider loan restructuring to ease the COVID-19 stress by September 15. On this account, the banks may restructure the loans of more than 10 lakh crore largely attributed to five to six critical sectors that include commercial real estate, aviation, and hospitality those were drastically affected by the COVID-19 pandemic.
According to the bankers, this is a win-win situation for both lenders and borrowers. While the corporate would try to save their business from transforming non-performing asset (NPA) and buy crucial time to get the cash flow back on track to enable servicing the debt. 
Alongside this, the banks could also make a 10 percent provision against restructured accounts as compared to 15 percent if the same account turns into NPA. This move would also aid in adding that five percent conservation of capital would also enable banks to recast. 
However, the MSMEs are already covered under the ongoing restructuring scheme. It is further estimated that 12-15 percent of the total loan book would utilize one-time restructuring. There is a total of 100 lakh crore worth of loan is outstanding presently in the banking system. Additionally, half of the 30 percent of the total loan book that sought moratorium that ended on August 31, might also get restructuring. 
 S S Mallikarjuna Rao, Managing Director, Punjab National Bank stated, "About five to six percent of loan book would go for restructuring as per RBI-approved guidelines. This five to six percent comes to about 40,000 crore. The major composition of this about 50 percent, would be corporate books."
According to rating agency ICRA reports, with tighter debt recast norms announced by RBI, the restructuring would be around five to eight percent of their overall loan book. Lately, RBI had allowed a one-time restructuring of both retail and corporate loans without getting classified as a  non-performing asset (NPA).  
The restructuring to be implemented under the framework may include conversion of any interest accrued or to be accrued into another credit facility, or granting of moratorium and rescheduling of repayments based on the assessment of income streams of the borrower for the period of two years. 
The resolution under this framework could be invoked until December 31, 2020. While, the lending institutions have been encouraging to strive for early invocation in eligible cases, especially for personal loans. The India Ratings and Research August report state that, banks are likely to restructure up to Rs 8.4 lakh crore of loans, or 7.7 percent of the overall system's credit, under the recast package.