Regulatory support needed for BFSI in times of COVID-19

The regulators need to act fast, while the RBI yesterday announced the extension of the priority sector classification for bank loans to NBFCs for on-lending for FY 2020-21 in a move which will provide some respite, a lot more needs to be done.

Mar 24, 2020 02:03 IST India Infoline News Service

Coronavirus
The corona pandemic has brought world economy to a standstill and India has also fallen prey to the lockdown in majority of the states. The banking and financial sector which is at a crucial time of the year where dispensations are the highest have also come to a grinding halt due to the limited movement of salesforce.

The regulators need to act fast, while the RBI yesterday announced the extension of the priority sector classification for bank loans to NBFCs for on-lending for FY 2020-21 in a move which will provide some respite, a lot more needs to be done.

The regulators may consider to do the following to instill support to the BFSI sector in light of the current fast paced spreading virus which is likely to have multifold impact across sectors is listed below.
1. Allow a moratorium of 90 days on payment of EMIs (to include both Principal and Interest components) starting from March 1, 2020. For borrowers who may have already paid the EMI for March, similar 90 days moratorium may be effective April 1, 2020.
2. The EMIs under moratorium to be repaid in EMIs commencing from the month subsequent to the month of normal ‘end of loan tenor EMI’, with interest at contractual rate.
3. This one-time moratorium, driven by factors beyond human control, shall not be treated as restructuring of loans, for the purpose of either classification of assets or any additional provisioning, both under IGAAP and under IndAS.
4. The moratorium shall be available only for accounts in the 0-90 days bucket as on March 1, 2020. However, if the loan has already slipped into NPA buckets, such loan accounts may not be allowed to avail of this benefit.

The above measures shall ensure the following: The customers shall be relieved of making payment of EMIs for a period of 3 months, which is the current likely period of almost total business disruption.
1. The customers shall not have any additional burden of payments until normalcy returns.
2. The NBFCs, who have virtually stopped disbursements, shall not have asset side worries and shall start where they have left off when normal operations (are expected to) resume.
3. A similar relaxation by Banks to NBFCs shall take care of liability side worries and shall keep the entire situation in balance. This would require similar forbearance to Banks.

The regulators may consider these relaxations to protect the long term interest of both lenders and borrowers. The move will help provide support in the integral segments namely agriculture, MSME and housing sector.

The author of this article is Kailash Baheti, CFO, Magma Fincorp

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