Aug 31 Loan Moratorium End Will Impact Bank’s Health
August 31 marks the end of the six-month loan repayment holiday, or the 'moratorium' allowed by the Reserve Bank of India (RBI). The moratorium was meant to provide immediate relief to borrowers who were impacted because of the lockdown. But several bankers have since voiced concerns that these unpaid loans may impact the health of the financial system. Even RBI observed that the impact of the moratorium on NBFCs may be substantial, not only because they have a larger portion of loans under moratorium, but because these assets are dominated by real estate customers and wholesale borrowers. The total loans under moratorium stood at 31 percent of the outstanding bank credit for public sector banks. But as per RBI’s assessment of their book, 68 percent of PSBs' total loans remained unpaid. Hence, the current numbers being reported by lenders must be taken with a pinch of salt. Banks said that anywhere under a tenth of their loans up to a third of their books were under moratorium in phase two, as shown in the chart below. But for NBFCs and housing finance companies, this number is far higher. Surely, some of these unpaid loans may be restructured under RBI’s new scheme. For the rest, the fear that borrowers who have not been able to service instalments for six months may not immediately be in a position to start servicing it now. Due to restructuring and extended window for repayment of loans under moratorium, Banks do not have a clear picture on the stress levels for several quarters. However, this time banks are starting from a better with higher capital levels and provisioning buffer than in the previous cycle.
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