The Reserve Bank of India’s resolution framework for pandemic-related stress provided timely guidance on the possible course of action after Aug. 31, 2020, when the moratorium on loans comes to an end. It may be expected that a majority of borrowers in the moratorium will require some form of restructuring. On a systemwide basis, this may mean one-in-five retail borrowers and one-in-three commercial borrowers.
Adding to the pressure of the scale of this restructuring is the timeframe. The restructuring will have to be invoked by Dec. 31, 2020, with retail and corporate cases getting a further 90 and 180 days, respectively, to implement it. However, certain rules that have been proposed may end up creating a bottleneck, while adding limited value to the process. In the worst-case scenario, it is possible that the exercise is compliant with the rules but fails in terms of meeting the economic objectives.