Indian companies can suspend loan repayments to banks for another three months until end August and repay the accrued interest over seven months starting September, the central bank said, offering some comfort to businesses that have struggled to stay afloat amid a national lockdown that has choked revenues.
Reserve Bank of India (RBI) governor Shaktikanta Das said the move would help borrowers. “It was posing problems in cash-flow management for various borrowing entities,” Das said.
The central bank also eased working capital financing, permitting lenders to reassess the working capital cycle of a borrower till 31 March and allowed banks to increase group exposure limits to enable additional funding to corporates.
With economic activity yet to pick up even after the government has considerably eased curbs, borrowers are unlikely to be immediately able to repay their entire pending interest in one go. Many small businesses, who have been hit the hardest by the stringent lockdown, have opted for the moratorium.
Some business executives said the steps don’t go far enough. “These are incremental steps from the RBI but they don’t solve the problem,” said Sushil Modi, group chief financial officer of Lodha group, which plans to avail of the moratorium extension. “This removes the sword hanging above our heads on having to pay interest on loans again from June. We can’t plan for the future if there’s no clarity on how long this moratorium will last—if the government was clear about their GDP or growth expectations or fiscal deficit numbers, business houses can extrapolate from that.”
“The repayment of interest by 31 March on working capital facilities is a short period in our view and a longer period could have been considered,” said Karthik Srinivasan, group head (financial sector ratings) at Icra.
Borrower interest in the moratorium has varied across banks. For instance, while Bank of Baroda (BoB) has 90% of its eligible borrowers availing of the moratorium, the number is 20% in case of State Bank of India (SBI). At private sector lender Axis Bank, 10-12% customers opted for the deferment of repayments as on 25 April.
To be sure, some said Friday’s measures would help ease the stress on businesses.
“I think the government and the RBI have done enough for industry,” said V.R. Sharma, managing director of Jindal Steel and Power. “Whatever additional loans or working capital easing is taken, you have to ultimately repay it; you can’t keep increasing your debt burden. So, the moratorium extension is good, but we won’t be using these facilities. Once the economy opens up again, I want people to come out and start consuming.”
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