Reserve Bank of India surprises by reversing debt revamp stance

by Ronojoy MazumdarIndia’s central bank, which had shunned debt revamps since 2013, reversed its stand to allow lenders to restructure stressed loans of small companies.The Reserve Bank of India will allow one-time restructuring of loans to micro, small and medium-sized companies that are in default, the regulator said in a statement on Tuesday. To be eligible for the program, the loan should not exceed 250 million rupees ($3.6 million), according to the statement.The latest directive is new central bank Governor Shaktikanta Das’s first big policy move and yields to the government’s call to provide relief to small firms suffering from Prime Minister Narendra Modi’s cash-ban program in 2016. As much as 1.3 trillion rupees ($18.7 billion) of loans made to small firms are stressed, according to data from SBICAP Securities Ltd.“The biggest concern with such forbearance packages is the risk that such schemes could end up vitiating the repayment culture of honest MSME borrowers by encouraging defaults,” ASV Krishnan, vice president at SBICAP Securities, said in a note on Wednesday. Still, RBI’s precondition for borrowers will “disincentivize any incremental non-repayment or defaults by existing standard borrowers,” he said.Previous governors including Raghuram Rajan and Urjit Patel have eschewed loan revamp programs.

from Economic Times http://bit.ly/2An8J8j