Economists at State Bank of India pitch for loan recasts in select sectors

MUMBAI: Economists at State Bank of India (SBI) on Monday pitched for a sector-specific loan restructuring package after the end of the six-month loan repayment moratorium on August 31. They said the moratorium data is not "significantly perturbing" but hit out against the "spate of unplanned and unintelligent lockdown mania" in many pockets.

There is a growing list of voices demanding loan restructuring given the impact of the coronavirus pandemic on economic activities. However, some point to the global financial crisis experience, where the restructuring eventually led to an amassing of a huge pile of bad loans that the system is yet to get over.

"It is imperative that restructuring of loan accounts in select sectors is used as a policy option after August 31, to mitigate stress," the SBI economists said in a report adding that the setbacks are emanating from the continuing limited-area lockdowns and also job losses.

"We believe some sectors/companies may need support like one-time restructuring, sectoral support etc. to tide over the situation," they added.

Last week, Union Finance Minister Nirmala Sitharaman said the government is actively engaged in talks with the Reserve Bank of India (RBI) on loan recasts.

"The focus is on restructuring. The finance ministry is actively engaged with the RBI on this. In principle, the idea that there may be a restructuring required, is well taken," she had said.

The SBI economists said the actual number of retail borrowers availing moratorium is lower than the reported one because after the reporting of the data, many borrowers have started repayments.

In the corporate segment, companies with adequate balance sheet strength have also opted for a breather and are using the moratorium to conserve cash in the uncertain times, they said.

Citing an independent sectoral analysis of over 300 companies having a debt of over Rs 4 lakh crore, it said that 40 per cent of the moratoriums are in sectors with comfortable debt-to-equity ratio like pharmaceutical, fast-moving consumer goods and healthcare, they added.

The economists also said banks need to be adequately capitalised and added that it is imperative that the banking sector should avoid a repeat of the post-2008 crisis experience by being cautious and adopting utmost due diligence.