The companies impacted by the pandemic can restructure their loan under the one-time restructuring scheme (OTR). CARE had estimated a restructuring of 7.7% out of the total Rupees 800 lakh crore in total. This OTR scheme could prove to be helpful for those companies who have been severely impacted by COVID-19 and have been struggling to remain afloat in the economy.
OTR scheme has come to help the borrowers during COVID-19
If the estimated restructuring of the companies does not take place due to the disqualification of the parameters, then it could lead to bad loans. OTR scheme could help the companies to stay afloat by dissolving the COVID impact on the assets of the companies.
It seems that some companies may not even need any restructuring as the moratorium in Phase 1 and 2 were low, and it is assumed that they may lower more. So, the companies would bridge the gap once the economy begins to open up. Under the OTR scheme, 4-5% of the bank credit can be restructured, provided you fit in the parameters of the banks.
Due to the exclusion of some banks like NBFS, the impact of restructuring can be lesser. Other than that, the SMA 1 and SMA 2 category loans are excluded from this bracket of restructural.
The loans can be restructured across three aspects – personal loans, MSME loans, and corporate loans. The RBI has announced the initiation date could be up-to 31st December 2021, for restructuring. RBI expects the banks to inspect the reality before curating the restructuring process. COVID as rendered many loans into bad ones and this scheme is supposed to curb those bad loans into good.
The Gross NPA ratio is on the increase of 11-11.5% by the next financial year (2021). That is relatively higher than the current rate, that is 8.5%. CARE has also assumed that the banks would already have set their relevant OTR scheme’s parameters and thus would have excluded those companies that do not fit n them. However, it has also asked to reassess the conditions of the companies post-moratorium, after the impact of the COVID and then re-establishment of the economy.