Restructuring of loans will eliminate the need to send money to banks

Mumbai, Monday

With the government allowing one-time restructuring of loans to public sector banks, the government may no longer need to inject new capital into banks, as restructuring of loans will reduce the need for additional capital for banks.

In addition, due to the coronavirus, banks have ample liquidity available. The immediate increase in non-performing assets (NPAs) may not be seen as the moratorium expires in the current month and subsequent restructuring is to be implemented, the sources said.

Banks that do not currently increase NPAs will no longer need to make provision for it. In addition, most of the banks have already received approval to raise capital in the current financial year as per their requirement.

However, if some banks need capital to comply with regulatory norms, the government will meet them as in the past, the sources added. In the last financial year, the government had pumped Rs 50,000 crore into public sector banks. The money was sent by banks for the purpose of increasing lending.

The government has yet to inject any capital into the banks with the calculation that the banks will raise money from the market in the current financial year. After the second quarter results, the government will look at the balance sheets of banks and check their capital position, the sources added.

Loan restructuring could be helpful in supporting the economy, which has been hit hard by the Corona. More than 90 per cent of small and large borrowers have come under stress as cash flow has stalled due to the impact on trade.

Restructuring schemes have been implemented till March 2021. Under this scheme, in addition to retail and corporate loans, restructuring of loans provided to MSMEs is allowed.