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25-30% of bank loans under moratorium but only small portion of these expected to turn NPAs

Banks are relying on a pick-up in economic activity amid unlock phase and borrower profiles to expect that majority of loans under moratorium won’t turn bad.

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New Delhi: Nearly 25-30 per cent of total loans are under moratorium for most major banks, but they are optimistic that only a small portion of these loans may turn non-performing come September when borrowers will have to restart the payment of loan instalments.

A pick-up in economic activity amid the easing of Covid-19 lockdown, borrower profiles and sufficient cash balances are pushing the state-run and private banks to be optimistic.

Banks have pointed out that their internal analysis suggest borrowers who have opted for the moratorium so far have sufficient cash balances to service at least 2-3 equated monthly instalments (EMIs) but have chosen not to pay the loan instalments.

Announcing its results last week, State Bank of India said that 23 per cent of its loan book is under moratorium. SBI chairman Rajnish Kumar said the bank’s customer profile includes people like central government and state government employees and the salaried class. He expressed confidence that the banks’ loan profile will not be worse than last year.

“Around 82 per cent of the borrowers have paid two or more instalments during this period. More than 92 per cent of the people have paid one or more instalments,” he said, adding that the loans under moratorium should not be significantly different the second time around.

The Reserve Bank of India had initially allowed for a three-month loan moratorium beginning March allowing term loan borrowers to defer payment of principal and interest. Last month, it further extended the moratorium by 3 months.

Kumar said, “The numbers may not be significantly different or it may even improve as people exit the lockdown.” The housing loan portfolio of the bank comprises mainly salaried borrowers who will remain largely unaffected, he added.

Also read: India’s unemployment rate fell to 5.8% in 2018-19, experts say Covid shock will drive it up

‘Trend to conserve liquidity’

Anil Gupta, sector head, financial sector ratings, ICRA Ratings, said the borrowers who were in need for cash have already opted in for the moratorium and there may not be a substantial rise in their number in the extension period.

“Some corporates may need to avail the moratorium but for segments like retail and MSME, the percentage of loans under moratorium should remain stable,” he said.

With the lockdown getting lifted gradually and economic activity resuming, borrowers may be in a better position in terms of their cash flows, he said. He also pointed out how some banks’ number of loans under moratorium can change depending on whether it has given the opt-in or opt-out option to borrowers.

In a report dated 4 June, ICRA estimated that the gross non-performing assets (NPA) of banks may rise to 11.3-11.6 per cent by March 2021 from around 8.6 per cent in March 2020. It highlighted that uncertainty on the asset quality front remains high with almost 30-40 per cent of loan book across various banks under moratorium.

“Even if 10-20 per cent of these borrowers were to default, the slippage rate for banks could rise to 3-8 per cent of advances,” it said.

In a conference call with analysts after declaring its annual results on 28 April, Axis Bank said around 28 per cent of its loan book is under moratorium as of 25 April. Almost two-third of the retail customers have enough money in their bank account to pay their EMIs, it added. “The trend seems to be to conserve liquidity and protect immediate cash flows.”

In a conference call with analysts on 9 May, the ICICI Bank said that 30 per cent of all its loans were under moratorium as of April end. For the second round of the moratorium, the bank has asked its borrowers to opt for a moratorium every month for the next three months rather than giving the option in one go.

HDFC Bank had said that the loans under moratorium remain in low single digits.

Emails to ICICI Bank, Axis Bank and HDFC Bank on the latest status of the moratorium went unanswered.

Also read: RBI survey shows consumer confidence at record lows, Indians pessimistic about economy, jobs

‘May be counterproductive’

In a note dated 25 May, Emkay Global Financial Services had pointed out that an “extended moratorium may be counterproductive to some extent for banks and elevate NPA risk once the moratorium ends, particularly in retail and SME sectors, calling for higher credit cost”.

It had added that for small banks, the loans under moratorium remain more than 50 per cent of their loan book.

Motilal Oswal had pointed out in a research note dated 23 May that an extension of the moratorium could see more borrowers opting for the same. “Although incidence of moratorium is expected to increase, the trend in collection efficiency as the economy starts to recovery would be an important metric to assess the health of the banking system in the near term,” it said.

As of April end, for large banks, the moratorium has been around 25-35 per cent of total loans, for small finance banks, the moratorium has been much higher, it added. For instance, the loans under moratorium for Equitas Small Finance Bank stood at 93 per cent, for Ujjivan small finance bank, it was at 90 per cent and for Bandhan Bank at 70-75 per cent of total portfolio, it added.

Also read: India to see recession due to worsening consumption, investment demand: Monetary policy panel


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  1. Small finance Banks have a high moratorium percentage of their loans as against large banks ,This can be
    expected as these are small borrowers and may run into cash flow problems due to troubles during
    covid-19 lock down period,They deserve the help. NPA probabilities of these loans are negligible.
    We can see that HDFC and ICICI banks are exercising their discretion in administering the RBI s moratorium facilty .probably to suit the needs of the customers,
    The bank has to exercise as much of a customer analysis as in the phase of loan sanction in allowing
    the use of moratorium facility depending on the cashflow position of the borrowers as well as the
    the 3 Cs of credit to see that it does not turn to an NPA,

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