Lenders and credit rating analysts have urged the Reserve Bank of India (RBI) to avoid any further extension of the moratorium on loan repayment as such a move risks triggering a surge in non-performing assets (NPAs) in the financial sector.
The RBI’s monetary policy committee is set to meet August 4-6.
In March, the RBI had announced a three-month moratorium on repayment of loans and interest to cushion borrowers from the adverse impact of the COVID-19 pandemic and help mitigate a potential crisis in the financial sector in case of defaults. This was subsequently extended till August 31.
“Prolonged moratorium can result in ALM (asset liability management) issues, especially for NBFCs who have been impacted more than banks,” said Krishnan Sitaraman, senior director, Crisil. “This is because NBFCs had extended moratorium to many of their borrowers but there was no moratorium on their capital borrowings and a limited moratorium on their bank borrowings,” he added.
“Another key monitorable with extended moratoriums will be how borrower behaviour towards repayment discipline gets impacted post lifting of the moratorium,” said Mr. Sitaraman, adding that subsequent delays in loan repayments were bound to push up NPAs.
He said while initially many retail and corporate borrowers had opted for the moratorium to manage cash flows, the numbers had come down subsequently as economic activity picked up.
Stating that there were no official figures available on the moratorium burden faced by banks and NBFCs, Sankar Chakraborti, Group CEO, Acuite Ratings and Research said: “Estimates worked out by us suggest that it was about 42% for public, 30% for private and 15% for foreign banks in the first phase on an aggregate portfolio exposure basis. It was over 65% for NBFCs.’’
In the second phase, the portfolio aggregate moratorium figures are roughly 30%, 20% and 10% for public, private and foreign banks respectively. The reduction has been higher for NBFCs at about around 45%,” he said to a query from The Hindu.
Emphasizing that an another extension of the moratorium may hurt the lenders, he said “a long moratorium exceeding six months can impact credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments.”
“Providing a continuous moratorium with relatively better liquidity position may lead to diversion of surplus funds which otherwise could have been used for debt repayment,” Mr. Chakraborti said, adding that a one-time restructuring was a “more prudent option” than a blanket moratorium.
HDFC Ltd. vice-chairman and CEO Keki Mistry, quoting internal data, said fortunately there were not too many job losses and people opted for moratorium to stay liquid. “If you look at our book, 0.7% of our customers had suffered job losses, about 6% of our customers have suffered some degree of salary cuts and about 6% have faced some degree of problems with respect to their jobs. The total individual loans on which moratorium has been sought has been 16.6% [in Q1].”
State Bank of India Chairman Rajnish Kumar on Friday asserted that lenders were against extending the moratorium beyond August 31. “It is the view of all banks. Six months is enough. I do not know what will happen,” he said.
Recently, HDFC chairman Deepak Parekh had urged the RBI Governor not to extend thegrant any more extension of moratorium.
“Please do not extend the moratorium. Because we see that people who have ability to pay are taking advantage under this moratorium and deferring payment. There is talk of another extension which is going to hurt us, the smaller NBFCs particularly,” Mr Parekh had said.