Bank loan moratorium temporary solution for COVID-19 stress, says RBI Governor

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New Delhi, August 27, 2020: Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that resolution framework is expected to give a durable relief to borrowers facing COVID-19 related stress while the moratorium on loans was a temporary solution in the context of lockdown.

Addressing the keynote address at a newspaper event, Das said once there is clarity on COVID-19 curve and other aspects, RBI will start giving its estimates on inflation and growth. He added that the RBI has not exhausted its ammunition, whether on rate cuts or other policy actions.

On March 27 the had RBI permitted all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (referred to hereafter as “lending institutions”) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

In May, the RBI announced extension of loan moratorium by 3 more months to August 31.

Das emphasised that post containment of pandemic, careful trajectory needs to be followed for unwinding. Financial sector should return to normalcy.

However, he clarified that by no sense should it be assumed that RBI will unwind the measures soon.

Consolidation of PSBs a step in right direction; size of banks is essential, but efficiency is even more important, Das said, adding that overall, the banking sector continues to be sound and stable

RBI Governor said that there is considerable room for improvement in banks to avoid frauds.

“To say that banks will face stress is stating the obvious; what is more important is how banks react and respond to the challenge,” he added

Das also praised the government for its response to pandemic. He said, “Government response to pandemic has been fiscally very responsible, prudent and very calibrated.”