The government is in talks with the Reserve Bank of India for a one-off loan restructuring as the Covid-19 outbreak has strained borrowers’ finances, Finance Minister Nirmala Sitharaman said.

“We are definitely in discussions with RBI to see if a unique restructuring can be offered by also looking at the characterization of a company as stressed, unstressed…” Sitharaman said in an industry interaction Thursday.

The finance minister’s comments come after the country’s major lenders approach the RBI seeking authorization to restructure stressed accounts without having to classify them as non-performing assets. With high bad debts, banks fear that large-scale restructuring will become necessary due to the fallout from Covid-19.

Characterizing businesses as stressed or an NPA added to the stress and pain during the time of the pandemic, Sitharaman said.

Lenders have called for a restructuring, including an extended repayment period, lower interest rates and additional funding, without any downgrading of the asset classification from standard to non-performing, BloombergQuint reported in April. The regulator has not yet taken a position on this subject.

The RBI has already authorized a six-month moratorium on repayments until the end of August. If the regulator avoids one-off restructuring requests, India’s banking system could see an increase in bad loans, analysts fear. McKinsey & Co. forecasts an increase in the country’s bad debt rate, which is already 9.3%, by 700 basis points in the aftermath of the Covid crisis.

Interest rate transmission solution

Meanwhile, the finance ministry is engaging with the RBI to understand why the transmission of interest rates to borrowers has not been “as fast as it should be,” Sitharaman said.

The RBI has been nimble in cutting interest rates, but the reasons given by banks for not cutting rates have not been convincing enough, Sitharaman said. She added that the government will come up with a “fair” solution to this issue.

The RBI has cut the benchmark repo rate by 115 basis points since March to 4%.

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