Home > Finance > Decoding RBI policy: RBI should allow one-time loan restructuring for worst-hit sectors: Keki Mistry

Decoding RBI policy: RBI should allow one-time loan restructuring for worst-hit sectors: Keki Mistry

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Decoding RBI policy: RBI should allow one-time loan restructuring for worst-hit sectors: Keki Mistry 1

All we need to do now is to find ways to address risk-averseness as that will lead to liquidity flow, says HDFC CEO and Vice-Chairman.

Let us get a reaction from you on what we heard from the Reserve Bank of India today. Given the environment, has the RBI done the maximum they could have done?

I think the 40 bps rate cut should obviously be positive. What we have to now wait and see is how this filters down into market rate. Immediate reaction is market rates have not come down to that extent. Market rates are down by just about 10 bps but hopefully over the next one-two weeks that should correct. Some measures the government has made like introducing the bill that gives protection to bankers or decriminalises the acts of bankers unless there is mala fide intention gives faith and there will be more confidence to bankers to go and lend money. But the risk averseness needs to be corrected.

RBI has done enough in terms of infusing liquidity in the system. There is plenty of liquidity in the system but what is happening is that banks have become risk averse and therefore a lot of that money is going back into the banks in the form of deposits in reverse repo accounts. So that perhaps needs to be addressed in some form or the other. One thing I would have perhaps liked to see from the RBI is a one-time restructuring of loans for sectors which have been affected by this crisis, whether it be hospitality, airline, hotels, real estate. These are the sectors where a lot of jobs get created and that to my mind is really what the economy needs in the course of time because once some degree of normalcy comes in four, five, six months and people are able to start working normally, you need jobs because unless jobs are created, you will see a big rise in unemployment. So job creation is important and industries that create jobs need to be given some form of incentive.

It is a judgement call as to which sectors should be allowed to restructure and which shouldn’t. I mean every sector has got affected; airlines and tourism is the highest but media got affected, HFCs got affected, real estate will get affected. So the entire books cannot be restructured.
I am sure there has to be some mechanism which has to be put in place to identify sectors which have been most affected and are the sectors which also create the right amount of jobs. Then you can decide on restructuring of loans. Now for example, if a loan from hotel or airline or real estate picked whoever was due after this moratorium is over, how is that entity going to make the payment because realistically it has slowed down during this three, four, six months period; so the liquidity will not be there for that entity to go and pay the loan. So I think restructuring is something which is important. How do we do it? I think this needs a lot of detailed thinking and detailed planning.

Was there a case for RBI to allow more regulatory concessions like allowing a greater portion to be held to maturity or even the capital adequacy ratio. Banks in many countries have reduced the capital adequacy ratio whereas our ratio is higher than what the Basel norms require. So would that have helped and why is the RBI so reluctant?
I am sure they have the reasons. I do not want to comment on that. I am sure they have the reasons. Capital adequacy in the Indian context has to be also seen in the light of risk rates. If the risk rates in India are lower than the risk rates elsewhere, then automatically; and I do not know whether that is true or not but if that is so; then that compensates for the higher requirement of capital adequacy. So you have to look at capital adequacy in the context of the risk rates that are there.

What are the possible new instruments that the governor could be hiding up his sleeve?
Honestly, I have no idea. But I think we have to compliment the RBI for ensuring that there is liquidity in the system. All we need to do now is to find ways by which that risk averseness which is there gets addressed because if that risk averseness gets addressed, then liquidity will flow through and the government has also taken a variety of measures. So let us also compliment the government for it. The measures announced by the finance minister last week also go a long way in ensuring that money is made available to entities that need that money whether it is A-rated or AA-rated NBFCs.

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