Hopes rise on extension of India loan freeze

Dubai - The RBI had allowed banks and other financial institutions to offer a six-month moratorium to all existing individual and corporate term loan borrowers until August 31

A day after the deadline for temporary relief on loan repayments ended in India, the federal government on Tuesday told the Supreme Court that the moratorium on repayments can be extended by two years as per the Reserve Bank of India (RBI) circular.
If the suggestion is to be taken as a signal that the freeze of repayments would be extended further, it will come as a great relief to cash-strapped businesses and the individuals struggling to navigate the fallout of the coronavirus crisis.
The news came as the RBI Governor Shaktikanta Das hinted that the government would soon be announcing more growth-supporting measures to help the economy battered by the lockdown.
The RBI chief also ruled out the prospect of stagflation, and said he expects consumer inflation to moderate.
"I do not agree that we are likely to face a situation of stagflation," Das was quoted in an interview. "I am of the view that consumer inflation, going forward, should moderate."
Economists said both developments would bode well for Asia's third-largest economy which is currently witnessing an unprecedented meltdown with the gross domestic product for the April-June quarter nose-diving by a sharp 23.9 per cent as against a 5.2 per cent expansion in the corresponding quarter of 2019.
In the wake of the pandemic outbreak, the RBI had allowed banks and other financial institutions to offer a six-month moratorium to all existing individual and corporate term loan borrowers until August 31.
India's Solicitor General Tushar Mehta, representing the government, told the Supreme Court that discussions were on with the central bank and the bankers' association to arrive at a solution on the issue of waiving interest on loan dues during the moratorium period. "We are in the process of identifying the distressed sectors to verify benefits as per the impact of hit they have taken."
"There are more issues involved, GDP is down 23 per cent and the economy is stressed," said the lawyer told the apex court, which was hearing a petition seeking to extend the moratorium period to help borrowers. "The lordship may go through it, the matter may be taken up tomorrow or day after tomorrow. The interest on interest part, we have discussed with the RBI officers," Mehta said.
Last week, the Supreme Court sought the government's stand on waiving interest on loan repayments during the moratorium, saying it "cannot hide" behind the RBI.
The RBI had informed the court earlier that there cannot be an interest waiver on term loans as the financial health and stability of banks would be at risk.
issacjohn@khaleejtimes.com