What happens after two years?

After the recent Monetary Policy Committee (MPC) meeting, the Reserve Bank (RBI) announced, "A window under June 7 resolution framework will be provided which will enable lenders to implement a resolution plan, without change in ownership." It means that banks will not have to initiate action against companies defaulting on their loans and will be allowed to restructure unpaid loans. The Finance Minister suspended the Insolvency and Bankruptcy Code (IBC) of 2016 for one year from June 2020. "Stressed MSME (micro, small and medium enterprises) borrowers will be eligible for restructuring their debt under the existing framework provided that their accounts were standard as of March 1, 2020." "Unlike the Corporate Debt Restructuring (CDR) that was abused, this one is well structured to ensure that only those businesses that fell behind due to the Covid attack benefit and not those already in distress before the virus went viral," cheered MC Govardhana Rangan. "This being done was the need of the hour, not with the intent of hiding what the stress on the banking system is because most banks and NBFCs (non-banking financial companies) have announced their capital raises and the government will support the PSU (public sector undertakings) banks in their capital raises.," said Abizer Diwanji, EY India. With interest piling up how will stressed companies make enough profits at the end of the moratorium period, when economic growth was 4.2% in 2019-20, against 6.1% in 2018-19? "If one-fifth of them default once the moratorium is lifted, the quantum of bad loans would touch a dizzying Rs 20 trillion, more than double the current level," calculated Vivek Kaul. India's GDP growth rate has been shrinking since 2016. The fiscal deficit for April-June period was Rs 6.62 trillion or 83.2% budgeted for the entire financial year, wrote Vivek Kaul, so the government is unlikely to have money to cover losses of PSU banks. "The engine was sputtering" before the pandemic, wrote Andy Mukherjee, "Yet just to return to this low-speed economy, India will have to top up the capital destroyed by the coronavirus." "However, in India, truth is currently as scarce as capital. It's in nobody's interest to discover the extent of the money shortfall because the hole won't be filled." Banks are showing higher net interest incomes because of an accounting trick -- "if the interest from a loan is due, it is considered as received, even though the borrower may eventually end up not paying it for various reasons", wrote Aparna Iyer. The shortfall will show up when the moratorium period ends. PSU banks may need nearly Rs 900 billion extra capital in this financial year to keep going, wrote an editorial in the Mint. The solution is to reduce government stakes in these banks. But, why would anyone want to buy a share of enormous debts? Remember Air India.