1. The Reserve Bank of India, in its latest statement on developmental and regulatory policies, announced a scheme for a one-time restructuring of loans to help borrowers manage the stress caused by the Covid-19 pandemic.
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2. The intent of the scheme is to help those borrowers who were on track to repay loans but are unable to because of the adverse impact of the Covid-19 lockdown on their businesses.
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3. A number of checks and balances have been introduced to prevent a repeat of the previous episodes of loan restructuring, which did not succeed in addressing the NPA crisis but instead led to a widespread strategy of ‘extend and pretend’, where banks kept on extending fresh loans to ailing companies, even as they struggled to repay old debts.
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4. For corporates, the scheme is applicable to only those borrower accounts which were classified as standard, and not in default for more than 30 days, as on 1 March 2020. The invocation of restructuring has to be implemented by 31 December 2020.
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5. The move to announce a one-time restructuring of loans was needed to support the firms adversely impacted by the Covid-19 pandemic.
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6. Loan restructuring intends to provide flexibility to banks and was needed as there is a risk of banks’ NPAs rising by alarming proportions by the end of the year.
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7. According to the RBI’s Financial Stability Report, the banks’ NPAs, which, until now, were showing a declining trend, are estimated to rise to 12.5 percent by March 2021.
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