The options include allowing EMI deferment for a few months in cases where the borrower has suffered total loss of income or allowing step-up EMIs, with a lower payout for a couple of years to make up for a reduction in salary or loss of income due to the pandemic.
According to sources, the KV Kamath committee will not look into retail and home loan restructuring and banks will draw up their own proposal which they will submit to their boards by early next month after getting an idea of the number of borrowers facing stress.
Bankers are keen to restructure loans in order to avoid having to classify defaulters as non-performing assets. Also, banks say this isn’t the right time to enforce security and attach assets. Though RBI has let banks extend loan tenure by two years, bankers say that they cannot provide a two-year moratorium.
Anyone with a 15-year loan who has availed moratorium for six months will already see their overall loan tenure extend by 14 months. This means that at most banks can defer EMI by a few months. The exact relaxation would depend on the interest rate that the borrower will be paying. While home loan rates have come down to below 7%, banks say that it will be difficult to provide their best rates to restructured loans as lenders have to make an additional provision of 10% on restructured loans. This will increase costs by up to 30 basis points.
According to the terms of reference of RBI’s appointment the Kamath committee is expected to submit its report by mid-September. Bankers expect the committee to give various parameters for restructuring including the maximum debt-equity ratio to be allowed, the permissible leverage for each sector like hospitality, aviation, real estate, or construction.
The committee would also decide under what circumstances can conversion of debt to equity would be allowed. In addition, every individual corporate loan, where bank exposure is over Rs 1,500 crore would be reviewed by the committee to consider restructuring.