Banks may need capital for provisions

Mumbai: The Reserve Bank of India‘S expansion of moratorium for another three months to August 31, and the likelihood of companies staying cramped for months increases the possibility of thousands of loans worth borrowing being restructured.

However, the absence of relaxation in restructuring norms could lead to a significant increase in public service obligations and force banks to raise capital in a harsh environment.

Bankers say that RBI may need to hone rules requiring delivery if existing promoters are detained by one loan restructuring. They say the existing promoters have the best chance of keeping the business going rather than seeking a new one that would have difficulty running a medium-sized company.

The need for restructuring is urgent, especially in aviation, hospitality and travel as they stare at an abyss of cash flow with unprecedented uncertainty of recovery.

“Cash flows in these sectors are down to zero while still having to pay their fixed costs. All sectors have been affected, but these have been hit harder … Restructuring is the only option, ”said a senior public sector bank director.

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