System-wide loan moratorium down to 25% due to resumption in business activities: Acuité Ratings

MUMBAI: Financial system loans under moratorium fell to 25% for the June-July period due to resumption in business activities, research by Acuité Ratings shows. In the second phase the moratorium figures are roughly 30% for public and 20% for private sector banks. The reduction in the moratorium burden has been higher for the NBFC sector from the earlier 65% to around 45%.For the retail borrowers in banks, the share of moratorium loans came down to 45% in the phase 2 of moratorium against 60% phase 1. For corporate borrowers moratorium levels declined to 17.5% against 25%, the research shows.“ There has been a steady decline in the proportion of borrowers under moratorium in the second phase (June – August 2020) primarily due to resumption of business activities, with easing of lockdown, borrower realisation of the accrued interest burden and also the efforts made by banks and NBFCs to pull out better customers from moratorium,” said Sankar Chakraborti, Group CEO of Acuité Ratings and Research.The Reserve Bank of India’s bi-annual financial stability report had said that system wide moratorium levels were at 50% at the end of April. The RBI announced a three-month moratorium in March along with a freeze on rating action on customers availing the relief. That was subsequently extended by another three months to August.While the asset classification for the moratorium loans remain unchanged, the banks and NBFCs have started to make contingency provisions for such loans fearing that a proportion of these loans will turn delinquent.There is also a increased clamour from banks seeking an end to the moratorium relief by August end. Lenders want RBI to allow one-time restructuring of stressed loans.“Another extension of the moratorium may hurt the lenders because the clients with improving cash flows may continue to avail the moratorium and further the section of borrowers who have already started to pay may again seek moratorium, impacting the expected improvement in collections,” said Chakraborti.Recently industry veteran and chairman of HDFC Ltd., Deepak Parekh had joined SBI Chairman Rajnish Kumar in demanding that the central bank not extend the payments moratorium beyond August 31 as even those who could afford to pay are exploiting the situation for financial gains which is straining lenders. But he suggested that RBI permit loans restructuring failing which bad loans could surge. “Please do not extend the moratorium because we see that even people who have the ability to pay whether it’s individuals or corporates are taking advantage under moratorium and deferring payments,” Parekh appealed to RBI Governor Shaktikanta Das where the latter was addressed industry participants under the aegis of industry body CII. “There is some talk that moratorium could be extended by another three months it is going to hurt us and particularly the smaller NBFCs.” Responding to Parekh, Das had said that he would consider his suggestions without commenting further on policy related decisions. “I have noted these suggestions but I will not be able to comment on them now,” Das had said. Just recently, SBI chairman had said that across the board relief on payment of loan dues is not needed beyond August and he was expecting the banking regulator to take a more sectoral approach in the coming months. “The RBI has data from the entire financial system and they will take a call basis that, but if you ask me across the board moratorium is not required anymore,” Kumar has said on July 10 while speaking at a conclave organised by the State Bank of India. “Certain sectors require relief and basis the data that the RBI has access to, I expect a calibrated approach from the regulator.“