Impact Of RBI’s Loan Moratorium

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On May 22, the RBI permitted banks and NBFCs to allow a further 3-month moratorium, e from June 1 to August 31, 2020, on the payment of instalments in respect of term loans outstanding as on March 31, 2020.

HOW DOES MORATORIUM HELP?

Extension in moratorium on term loan instalments has provided a major relief to borrowers and companies facing cash flow problems, resulting from reduction in income or no income due to job losses.
This helps them get some extra time for repayment even as their loan accounts continue to remain standard and their credit score is not adversely affected.
For leveraged companies facing the cash crunch, the moratorium provides survival time.
The expectation among the regulators and the banking fraternity is that once the lockdown eases fully in due course, economic activity will come back on track, enabling restoration of income levels of people affected by the sudden stall.

Individuals and companies who have availed term loans — such as home loans, car loans, corporate loans and credit card loans — can avail or seek extension of moratorium facility.

According to data provided by different banks, nearly 30% of their outstanding loans have come under moratorium so far.
For some banks, this percentage is almost 70%.
For large lenders like State Bank of India, ICICI Bank, Kotak Mahindra Bank and Axis Bank, the percentage of loans under moratorium is under 30%.
For Bandhan Bank, it is as high as 71% since it lends primarily to micro units.
Banks expect more people to opt for moratorium facility as sectors such as aviation, tourism, hospitality, transportation and start-ups have seen not just salary cuts but also layoffs.

The impact of availing loan extension varies widely across
For someone in the initial years of loan tenure and availing moratorium, his interest payout to the bank and tenure of the loan will extend significantly.
For a borrower whose loan was taken some years ago and has been repaid significantly, the extra interest payment will be relatively smaller.
For someone not facing any cash flow issues, moratorium is of no benefit.

Banks are likely to take a hit down the line since this is expected to significantly add to their non-performing assets (NPAs) from the second half of 2020-21.
Banks are unlikely to face problems for the next three months as regulatory relaxations, will provide them a breather till September in recognising NPAs.

Post September, NPAs are expected to shoot up from the current level of around Rs 10 lakh crore, when these loans come up for repayments.
In a report last Thursday, Fitch Ratings said Indian banks are looking at significant asset-quality challenges for at least the next two years