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'Loan restructuring to stem runaway rise in NPAs this fiscal'

New Delhi: The Reserve Bank of India's (RBI) move on one-time loan restructuring will help soften the Covid-19 pandemic's impact on the asset quality of banks, CRISIL Ratings has said in a report earlier.

According to the rating agency, without the loan restructuring support, gross non-performing assets (NPAs) could have touched a two-decade high of 11.5 % by the end of this fiscal, but will now likely print considerably below that level.

The central bank has permitted relaxations for corporate loans under the June 2019 Prudential Framework on Resolution of Stressed Assets. These will benefit borrowers in most categories. Indeed, in a first, the restructuring option has been extended to retail borrowers as well, given that many of them may face challenges in servicing debt owing to salary cuts and job losses.

Micro, small and medium enterprises (MSMEs), which have been substantially a ffected by the pandemic-led disruptions, have also got relief in the form of a three-month extension in the existing restructuring scheme, i.e. till Mar ch 31, 2021.

The major beneficiaries, though, will be sub-Rs 500 crore corporate exposures and retail exposures, which were earlier expected to see the highest increase in NPAs in percentage terms. The debt at risk in these segments - or loans at risk of slipping into NPAs this fiscal unless restructured by banks - is a sizeable Rs 3 lakh crore, the report has said.

Krishnan Sitaraman, Senior Director, CRISIL Ratings, said, "In the corporate segment, the situation today is different from the previous asset quality stress cycle, which started four years ago. Last time, the NPAs came primarily from bigger, chunkier accounts, whereas this time, an analysis of the top 100 exposures of our large, rated banks reveals that following a period of consolidation and deleveraging, these entities are likely to be better-positioned to withstand the current challenges. The key beneficiaries of the RBI's measures, though, will be small and mid-sized accounts, which are far less resilient in the current situation."

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