In a letter to Finance Minister Nirmala Sitharaman, it has suggested moratorium for a period of one year on debt repayments both for corporates and individuals.
It has also urged the ministry for an urgent infusion of liquidity by the Life Insurance Corporation of India (LIC) into the Non Banking Financial Companies (NBFCs) in a quasi-equity format.
"Assocham has sought a blanket year-long moratorium by banks on debt repayment both for corporates and individuals as also urgent infusion of liquidity by the Life Insurance Corporation of India into the NBFCs in a quasi-equity format," Assocham said in a statement.
The industry body said that as precautions are being taken amid outbreak of coronavirus, it would be prudent to put in place a strategy which will enable the economy to bounce back once things start returning to normalcy.
Terming the outbreak of the deadly virus as "black swan", it said it has occurred at a time when the India's credit environment was "already fragile and the economy was slowing down."
However, the difficult economic situation can be turned around with early financial measures, it said.
"Medium to long-term financing is key to stability of the crucial NBFCs which are one of the main sources of funding for the MSMEs, hit hardest by the Coronavirus crisis. The LIC investment into the NBFCs too would bear dividends for the state-owned insurance giant once fortunes turn for the overall economic cycle," Assocham President Niranjan Hiranandani said.
He informed huge bail-out packages have already been announced in several major economies like UK, while the US is working on the packages which may exceed even a trillion dollar.
For all present corporate loans which are impaired, the government and regulator should relax norms and allow a two-year window for the borrower and the lender to re-work the terms of loan based on the cash flow of the account. During that period, the loan account should be classified as 'standard' so that no provisioning is needed for the same, it suggested.
The suggestions also included a thorough review of the NPA (non performing asset) guidelines and provisioning forms for the banks.
It said "classifying an asset as NPA on the basis of number of days of dues unpaid is not quite in line with the global best practices."
Assocham also suggested relaxation in section 29A of Insolvency and Bankruptcy Code (IBC) which as per the suggestion should be made applicable only in cases where perpetration of fraud by promoters has been established through a forensic audit.
"Otherwise, in cases where the promoters have been victims of circumstances or factors beyond their control, they should be allowed to bid for their companies during the resolution process. That would ensure better realization of value thereby improving the recovery by lenders," the body added. ABI MKJ