Demand for restructuring of debt-ridden PSU banks

Amid the rising intensity of the second wave of the Corona epidemic, economic activity in most states across the country has stalled, creating a challenging situation on the financial front once again. This dire situation has put the business sector as well as the banking sector in trouble. Public sector banks have called for a second debt restructuring to alleviate this adversity. Even last year, debt restructuring was allowed due to covid so that the installment paying accounts were not transferred to the default category.

The second wave of the Kovid epidemic has put micro, small businesses and many families in trouble. Many people took advantage of the restructuring last time, but their condition is not looking good at the moment. This demand has been made by PSU banks in view of this adversity.

According to senior bankers, the CEOs of some banks had expressed concern over the issue and once again demanded restructuring of debts in a meeting with Reserve Bank Governor Das. If the RBI approves the restructuring, the provision related to it was also discussed at the meeting. Lenders demanded a lower provision (about 5 per cent) for such accounts. Last year, it asked for a 10 per cent provision in the loan restructuring permit, i.e. 10 per cent of the amount of bad debts. Bankers said that keeping in view the pressure on the banking system, banks are keeping more provisions than the regulatory rules. Many such suggestions have been formally sent to the RBI by the Banks Association of India.

In a meeting with the CEOs of banks, the RBI governor acknowledged that the public sector is playing an important role in providing lending and banking facilities to the general public and industries in times of epidemic. Das said banks should implement the steps recently announced by the RBI. They should constantly focus on improving their balance sheet.

The current situation in the financial sector was also discussed at the meeting. According to the RBI's assessment of the economic situation, Kovid's second wave has had a wide-ranging impact in India and around the world. Accordingly, real economic indicators have been soft during April-May 2021. The second wave of epidemics has affected demand, while non-essential spending has declined and employment has also been affected. But there is little impact on overall supply.

The meeting also reviewed the flow of loans in various sectors including small borrowers and MSMEs. However at the end of the meeting a certain Reserve Bank is likely to announce a decision in the near future.