The top bosses of banks have asked the Reserve Bank of India (RBI) to extend the one-time restructuring scheme for micro, small and medium enterprises (MSMEs) and retail loans in the wake of the resurgence of Covid-19 infections and concerns about a rise in non-performing loans.

Bankers have also requested for more open market operations (OMOs) of shorter durations to ensure a smooth yield curve, Indianbankingnews.com has learnt. OMO is an open market operation where RBI buys back bonds from the banks and other entities to inject liquidity into the banking system.

“After the second wave of Covid-19 infections, there is an air of uncertainty and we are in no position to predict the outcomes. There could be a rise in bad loans. We have requested the RBI for extending the one-time restructuring by another three to six months so that there is no stress on the borrowers,” said a banker who attended the meeting but did not want to be named.

RBI had allowed one-time restructuring in August 2020 for retail loans and for loans up to Rs 25 crore to MSMEs. The only condition was that these loans should have been standard accounts without any defaults as on 1 March 2020. The scheme was available up to 31 March 2021. Banks now want this scheme to be extended for another one or two quarters.

The RBI on Monday met with heads of public and private sector banks through a video conference. After presenting the first bi-monthly monetary policy for the current financial year on 7 April, the RBI wanted a feedback on the capital position of banks, credit growth and progress on non-performing asset (NPA) management. RBI governor Shaktikanta Das, deputy governors MK Jain and M Rajeswar Rao and a few other senior officials, who were present in the meeting, discussed the liquidity scenario, monetary transmission, credit flow to the stressed sectors such as MSME and retail, and capital augmentation by banks.

“We expressed our concerns about the probability of bad loans rising and the impact the lockdowns could have on collections, but RBI said it’s too early to conclude on anything. It is better to closely watch the situation, wait and remain prepared,” said the head of a bank who was present in the meeting.

Though satisfied with the current level of provisioning, RBI asked banks to proactively raise additional capital, the head of another bank said on condition of anonymity.

The main worry for some of the private banks was discrepancies in the yield curve. Bankers brought up the structural issues with the yield curve, with the eight-year bond trading 40 basis points higher than the ten-year benchmark bond. “So there were suggestions for the OMOs for the 8-year bonds so that discrepancies could be sorted out,” a banker said.

In his opening remarks, Das highlighted the recent policy measures taken by the RBI to further support the ongoing recovery while preserving financial stability. He touched upon the importance of credit flows in sustaining the nascent economic recovery and advised the banks to remain watchful of the evolving situation and continue taking measures proactively for maintaining their business continuity, sharpening business strategies and raising adequate capital for strengthening balance sheets.

The governor also emphasised the need for banks to maintain close vigil on the payments and other IT systems operated by banks and fortifying those for enhanced efficiency and resilience so as to offer seamless and uninterrupted customer service.

The main worry for the central bank is to smoothly conduct the government’s mammoth borrowing programme while keeping interest rates stable. RBI also wants banks to provide credit, including to stressed sectors and small borrowers, while prudently managing the NPA situation.