Prolonged moratorium on loan repayment will lead to diversion of funds: Kishor Kharat

In May, the RBI extended the moratorium by another 90 days, making it a six-month moratorium on repayment of commercial and individual loans as people and businesses struggled to repay their loans, so this extension will go on to what extent, asked Kishor Kharat, former MD & CEO of IDBI Bank.

New Delhi:As the second round of loan repayment moratorium is set to expire by the end of next month, several bankers have spoken against a possible extension of moratorium on loan repayment by the banking sector regulator Reserve Bank of India.

Earlier the Reserve Bank of India gave it for 90 days, and then they again extended the moratorium by another 90 days, so this extension will go on to what extent, asked Kishor Kharat, former MD & CEO of IDBI Bank.

In March this year, the Reserve Bank Governor Shaktikanta Das announced a 90 days moratorium on loan repayment for those businesses and individuals whose business and jobs were affected by a complete nationwide lockdown announced by Prime Minister Narendra Modi on March 24 to slow down the community spread of the Covid-19 virus.

In May, the RBI extended the moratorium by another 90 days, making it a six-month moratorium on repayment of commercial and individual loans as people and businesses struggled to repay their loans due to economic slowdown and job losses caused by Covid-19 global pandemic.

The highly infectious Sars-CoV-2 virus has killed over 26,000 people in the country and over 6,64,000 people across the world in just seven months after the first case surfaced in China late last year.

According to an estimate by the IMF, while the global economy is expected to suffer a loss of $9 trillion, India’s economic growth is also set to be in negative in the current fiscal.

Kishor Kharat, who also handled corporate debt restructuring (CDR) mechanism at the IDBI Bank, says the Reserve Bank extended the moratorium in May by another 90 days as the government had not started to unlock the economic activity in the country at that time.

“Why they (RBI) extended, because at that time we had not started this reopening. Now we have started to reopen the economy then why another extension is needed,” Kishor Kharat said in response to a question by ETV Bharat.

Earlier this week, HDFC Chairman Deepak Parekh requested RBI Governor Shaktikanta Das not to extend the moratorium on loan repayments that is set to expire on August 31.

“We see that even those who can pay, whether individual or corporate, are taking advantage of the moratorium and not repaying. It is hurting us. There is some talk that the moratorium is going to be extended, our request is that it should not be done,” Deepak Parekh said in a webinar organized by the industry body CII in which RBI governor Shaktikanta Das was also present.

In the same programme, Rakesh Bharti Mittal, Vice Chairman of Bharti Enterprises, asked for extension of moratorium as businesses have not come back on track.

However, RBI governor Shaktikanta Das remained non-committal on the issue by saying that all the views were noted by the regulator.

Top bankers like Kishor Kharat, who was MD and CEO of two public sector banks – Indian Bank and IDBI Bank, also echo the apprehension of misuse of another extension by the RBI.

“Perhaps people will take undue advantage,” Kishor Kharat said in the Banking and Business Dialogue organized by Mumbai based cash & ATM management firm EPS India.

He also expressed the apprehension in the banking circle that some businesses may actually divert the surplus money available with them due to a prolonged moratorium on loan repayment.

“As a banker, we know that once extra cash flow is given to a business and if it remains in its hand then obviously it gets diverted. There is every chance of a diversion,” said Kharat.

Kishor Kharat said those businesses that are functioning they will also not pay due to a prolonged moratorium.

(Article by Krishnanand Tripathi)