RBI's New Monetary Policy

RBI's New Monetary Policy

RBI has allowed a one-time restructuring of loans

• Loan/Debt Restructuring means changing/making the terms and conditions of the already taken loan more liberal either by extending the loan repayment schedule or reducing the interest rate etc. This is done when the borrower is not in a position to pay off the loan. It helps both the borrower and the banker because if the loan restructuring is not done and the borrower defaults in payment then the bank may not be able to recover money. But if the bank relaxes the terms and conditions then it may help the borrower/business to again start the business and repay the loan.
• A bank may restructure a loan on its own (without permission from RBI) but then there are strict conditions. Generally when a loan is restructured (of course it was restructured because the borrower was not able to pay) then it again becomes a standard/normal loan and it will not be classified as NPA or if it had turned NPA then it will move from NPA to standard/normal category loan. But still, there is a RECORD kept that this loan has been restructured and RBI is kept informed. 
• Also when a loan is restructured then the bank needs to set aside some capital (called provisioning), which means that capital should be in reserve and cant be lent by the bank.
•  When RBI will allow one-time restructuring then the above conditions will not be required and it will remain a normal/standard loan.
• As per todays news, RBI has allowed ONE-time restructuring of Corporate, MSME, and personal loans. 
• RBI has not extended the MORATORIUM on loans beyond August 31. That means now all borrowers will have to pay EMIs (interest/principal) on their loans but yes they can ask for one-time restructuring and can still get relief from banks, but it will be done only once.

Background of Moratorium 

• RBI on 27th March 2020 asked/suggested banks to grant Moratorium on all term loans (home, auto, personal, agri, retail, etc.) outstanding (due) as on 1st March 2020 for three months i.e. till 31st May. Now it has been extended till 31st Aug.
• Moratorium period refers to the period during which you do not have to pay an EMI (interest or principal) on the loan taken. And the loan will not be declared as NPA. Kindly note that the moratorium is a deferment of payment and not a waiver of interest.
• What it means is that, if you have taken a loan then you may not pay EMIs (interest + principal) for these 6 months. But the interest on the Principal amount will keep on ACCRUING and U WILL HAVE TO PAY LATER ON. So, money wise there is no benefit, only that in this period of 6 months, u are relaxed.
• Now the Supreme Court says, WHAT IS THIS RELIEF IF LOAN INTEREST CONTINUED TO ACCRUE FOR THE MORATORIUM PERIOD.?
• RBI has clarified that, in its REGULATORY PACKAGE introduced amid lockdown, was basically like a MORATORIUM deferment and it CANNOT BE CONSTRUED TO BE A WAIVER (exemption of interest during this period of 6 months).
• RBI said it will not go for a forced waiver because it will risk the financial viability of the banks. Because the depositors have kept money in the bank and then this money is lent by banks. If banks will waive off the interest on the loan during this period then, the depositors will lose money for this period.

Priority Sector Lending (PSL)

• PSL are small value loans to those sectors of the society/economy that impact large segments of the population and weaker sections, and to the sectors which are employment-intensive such as agriculture and small enterprises. Scheduled Commercial banks are mandated to give a portion (40%) of their credit/loan to the priority sectors. The following have been declared as the priority sectors by RBI:
• Agriculture
• Education
• Housing
• Micro, Small & Medium Enterprises (MSME)
• Export Credit
• Social Infrastructure (Schools, hospitals, etc)
• Renewable Energy
• Others (weaker sections like artisans, village cottage industries, SC/ST, Self Help Groups, etc.)
• And as per today's news 'START-UPS' have also been included under priority sector lending.

Source: The Hindu