Don’t extend moratorium but change NPA period from 90 to 180 days: DK Mittal

By Tamanna Inamdar

Former Banking Secretary says around September, October, November, things will start looking pretty bad. Some of the sectors are very badly affected and they will need a separate dispensation.

Banks have been very vocal asking the government not to extend the moratorium at any cost. Recently, Mr Deepak Parekh was alsovery vocal on this issue. Do you think that an extension should even be on the table at this point?
Moratorium is a very great moral as well as legal matter. I personally feel that it was done very hastily. There are three points. One, not all borrowers were affected uniformly. Some of the borrowers had capacity to pay; others as employees, since their jobs or businesses were intact, did not opt out to pay. The second part is the contractual relationship between the borrower and the bank. Under no law you can change it and that is why the honourable Supreme Court stopped interfering in that matter. The third point is once you take a moratorium, your period of repayment gets elongated at the end of it and that is quite a painful thing for any borrower. So I would personally feel that moratorium extension is not required.

What is required is a special dispensation to banks to either restructure or change the period of NPA from 90 days to 180 days with Basel III permit to certain categories of borrowers. But a moratorium extension is going to be a very bad thing for the country, I personally feel so.

Are we looking at a scary situation over here? There are a lot of sectors which are going to take much much longer to recover, if at all. Meanwhile, you have the whole IBC process in a deep freeze.
If we want the economy to grow, the only way is that the banking sector has to be ready to lend now. The banking sector will lend only if they have capital to lend and if we have heavy provisioning requirements. Where is the capital to lend? The biggest problem today is to make our banking system and the associated FIIs ready to lend after August.

There are many problems like a) transportation or logistics which affected industry after industry. b) They cannot reduce the number of employees because they are not allowed to do so. c)The exports are heavily affected, agricultural prices are down by 50%. All these aspects have to be taken care of. Where is the money going to come and how can borrowers pay after August? We cannot say money is coming from outside. If there is no economic activity, how are they going to generate it and that results in a large number of accounts turning into NPAs. Around September, October, November, things will start looking pretty bad. Some of the sectors are very badly affected and they will need a separate dispensation.

Hotel and restaurants or hospitality industry has been directly affected now if we do not have a separate package for them, how are they going to survive? One policy cannot work for everybody. Sectoral packages have been done in the past. We have to have a combination of regulatory exemptions or temporary exemptions permitting them to restructure.

At least the first and second round of packages seem to provide more credit to the ailing sectors and these are sectors where recovery is looking very difficult right now. Other than providing more credit, is there another option that we should look at?
Credit would be useful if all industries are able to function. If they are not able to function, what do you do with the credit? The biggest problem is we have to be concerned about saving lives but we also have to see that economic activity takes place.If you slow down economic activity to the extent that it cannot be restarted, then that is a problem. We have to find innovative ways to compromise between life and economy. There is unfortunately no way out and solutions are available. They have to be done at a very local level, but they are available.

There is a problem with transporting goods for export from Mumbai port to Kolkata port. Why should any state government stop it? Many problems have to be addressed and unless we do that, the economy will not start running. If the economy does not start running, they will not be able to pay whatever money you give to them.

A big fear is that moratorium will be extended. We will have to wait till 31st August to see if that happens. If the economy does not pick up, if Covid-19 fears continue to accrue, then how are you even going to start recovering?
It is a tough question and nobody has a clear answer because there is nothing available to know what is going to happen. But let me remind everybody that in the 2008 crisis, a lot many decisions were taken where the impact was primarily to the financial sector. There was a compression in global demand. The domestic economy was not that much affected, except for exports. There we got dispensation of one-time restructuring. Today, the condition of the economy is much worse and we do not know for how long it will remain so.

We have to make a concerted effort to see that my economy restarts with some risk taking and of course taking care of the health of people. There are methods available but simultaneously we need to have regulatory dispensations as well as again one-time restructuring. There is no way out and it should be a contextual relationship between the bank and the borrower. The bank can understand that the genuine borrower needs to be given help and non-genuine borrowers don’t have to be given help.

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