Do you see the banks restructuring loans under the new RBI scheme?

We have to await the final judgment of the Supreme Court on the EMI moratorium front but one thing is clear that the 2 year restructuring story is going to only replace the moratorium and if the SC clears it then it could be a credit stress for the banks.

It is estimated that banks in India may restructure loans worth approximately Rs.10,00,000 crore under the COVID Restructuring scheme. When the EMI moratorium was offered in March, 30% of borrowers opted for it and half of them are likely to restructure.

For the banks it is going to be a clear advantage as it reduces the upfront provisioning that they need to make right away, compare to NPA classification. Restructuring under COVID will entail 10% provisioning as against 15% provisioning entailed if the loan becomes a NPA.

However, analysts are concerned that such a scheme of this kind could be credit negative, especially for PSU banks. Restructuring is not changing the credit profile of the borrower but only gives them more time to service the loan, which hits the bank profits.