RBI's one-time restructuring scheme may be limited to Covid-hit sectors

The Reserve Bank of India’s (RBI’s) one-time restructuring scheme may not be a blanket relaxation for all sectors of the economy, and the litmus test for qualification could be a clear-cut linkage with Covid-19-induced stress. 

Firms from the aviation, hospitality, and retail sectors are expected to be allowed to avail of the new scheme, whereas realty, steel, power, and telecom players could be excluded. “It may have to be established that the stress is due to the pandemic, otherwise it (the scheme) runs the risk of being misused,” said a source. 

Incidentally, while the one-time restructuring scheme was not on the agenda at the RBI’s central board meet on Friday, “two directors did make mention of it”, said sources. The concern is that the one-time restructuring that the banking regulator brought out in August 2008 around the time of the global financial meltdown had led to evergreening of loans by banks. It forced the central bank to come up with an asset quality review (AQR) six years later to rectify the situation. What is being unsaid now is that the gains of the AQR should not be wasted. 

Senior bankers in the loop on the new restructuring scheme said: “Banks have sought flexibility to give them wide scope to deal with specific cases. But given past experience, the RBI may be very particular. There may not be a blanket scheme to ease the concerns of all sectors.”

Realty, steel, and power are sectors already recipients of support measures. In the case of realty, the Centre had in November 2019 set up an alternative investment fund of Rs 25,000 crore to provide relief to developers with unfinished projects to ensure delivery of homes to buyers. This is being managed by SBICAP Ventures. The date of completion of commercial operations of projects was also extended by a year. 

 

A sunset review of anti-dumping duties on flat hot-rolled stainless steel products from China, Malaysia, and South Korea had been initiated by the Ministry of Commerce and Industry in October last year. And in the power sector, Rs 90,000-crore liquidity infusion was made for distribution companies. The expectation is that the crafting and execution of restructuring plans should be better this time around due to improved information disclosure through tools like RBI’s Central Repository of Information on Large Credits, TransUnion CIBIL, better internal monitoring, and a much-refined legal framework like the Insolvency and Bankruptcy Code (IBC).

It was pointed out that even the Ordinance suspending the corporate insolvency resolution process under the IBC is only on defaults arising on or after March 25 — when the lockdown was imposed — for a period of six months, which may be extended to one year. This is also seen having a bearing on the new restructuring scheme, which is in the works. Senior bankers are, however, of the view that it would be impossible to draw a direct linkage to Covid-19 related stress for regulatory forbearance.

They point to the central bank’s 2008 circular which did not cover consumer and personal loans, capital market, and realty exposures, but had to be later modified. Special regulatory treatment was extended to realty loans restructured for the first time as well as to exposures which were viable, but were facing temporary cash flow problems and needed a second round of restructuring. And the period for implementing the restructuring package was extended to 120 days, from 90 days, in respect of accounts covered under the 2008 circular.