After short term fixes, RBI now plays long term
Ramesh Nair, CEO & Country Head (India), JLL
RBI had introduced a moratorium on loans to tide over the immediate liquidity issues faced by corporates and individuals, adversely impacted by the pandemic. This remained in effect for the last 6 months (including extension) starting March 2020 and expired on 31st August 2020. This relief measure combined with the provision for restructuring of working capital facilities aided in better cash flow management for large corporates, small & medium scale enterprises and individuals. However, the interest levied during this moratorium period is sub judice.
As per the Financial Stability Report of RBI, 48.6% of the total customers accounting for 50.1% of the total outstanding loans availed this moratorium arrangement as of end April 2020. The prolonged nature of the pandemic and its continuing impact on businesses necessitated a further extension of this relief facility until end August.
Specifically, to real estate, this recourse provided the much-needed elbowroom to developers and suppliers of raw materials to keep their businesses afloat and viable. Further, it was also timely for individuals who had availed home loans as they were reeling under the pressure of discontinuity of steady income due to fragile employment scenario.
With Phase IV of the reopening of the economy in progress, business conditions look relatively better than that during complete lockdown. However, most of the businesses including real estate continue to face headwinds due to weak market conditions. In this scenario, it was timely for RBI to allow one-time restructuring of corporate and personal loans (including home loans) in the last MPC meeting held in August 2020.
Under this mechanism, RBI’s special resolution window would enable lenders to provide one-time restructuring of loans based on a prescribed framework pertaining to Covid-19 impacted assets. This is expected to benefit real estate developers including suppliers of key raw materials to reset their debt and provide a fresh lease of life to service their debt prudently. Also, this will enable corporates to focus on restarting their business in the next normal with renewed vigour and vitality.
RBI has done a well balancing act by covering individuals as well taking cues from the fact that consumption has been severely hit. Lower interest rates combined with this accommodative stance of the Central Bank will aid in rebuilding consumer sentiment, thus consumption (including housing sales).