Money Management

Letter to BS: Moratorium extension will make it harder for everyone

The Reserve Bank of India (RBI) and banks in general face the dilemma of ending or extending the moratorium on August 31. Ending it when the economy has not yet started to recover will mean large-scale defaults. On the other hand, extending the moratorium beyond August 31 will give banks little time to continue the recovery. As interest and fees continue to accumulate, borrowers will be faced with gigantic repayments when the moratorium is finally lifted. Assuming that even half of MSMEs, personal account, auto and credit card holders default, there will be a huge increase in non-performing assets (NPAs). Tinkering with NPA standards will only postpone the problem to a later date. So it might be better to end the moratorium on schedule and allow banks to collect as many loans as possible, with the rest in there, well before March 31, 2021. This will also help borrowers prepare. themselves psychologically to find funds to repay their loans. Postponing the problem will make it more difficult for everyone – the borrowers, the banks and the RBI.

Arun Pasricha New Delhi

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