The government is keen on the Reserve Bank allowing a one-time restructuring of loans by banks, because of the stress being faced by many borrowers in the wake of the COVID-19 pandemic, sources in the government told CNBC-TV18.

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Sources said that the decision on restructuring and the details of such a move would be up to the RBI.

Many bankers have been vocal in their plea for a one-time restructuring of the loans, rather an extension of the moratorium by the RBI.

Initially, the RBI allowed banks to grant a moratorium on term loans to their borrowers till May 31, and later extended the deadline to August 31.

The six-month moratorium allows borrowers a breather by pausing EMI payments and helping them conserve cash. At the same time, it also allows banks to keep such accounts standard. But the relief is limited in nature.

Banks fear that come August 31st, when the moratorium is lifted, many may not have sufficient capital to start paying immediately. This may lead to a rise in defaults. Instead, what banks have sought is a one-time restructuring of accounts. This will allow them to ease repayment terms for borrowers genuinely impacted by COVID-19 and match the repayment with their cash flows, thereby averting a default.

Current RBI norms allow banks to restructure accounts, but with the condition that they first downgrade it and set aside at least 15 percent provisioning. Banks have, therefore, been lobbying for a one-time restructuring window where such restructuring can happen without the asset classification downgrade and the subsequent additional provisioning

First Published:Jul 20, 2020 1:39 PM IST