Will There Be a Moratorium Extension

The decision on whether to extend the moratorium on loans till December 2020-end will be a crucial factor in determining the pace of recovery for the economy, banks and the real estate market in India, as per Christopher Wood, global head (equity strategy) at Jefferies Financial Group. Earlier this year, the Reserve Bank of India (RBI) had allowed banks and financial institutions to offer a moratorium of three months on payment of instalments on all term loans, which was subsequently extended by another three months till August-end. Wood believes moratoriums are hard to end and forbearance is forced on the banking sector, which (including NBFCs) still accounts for 19% of the MSCI India index, though down from a peak of 27% in December 2019. A moratorium, he suggests, could trigger a consumer lending non-performing loans (NPL) cycle. “For now, the moratorium means that the price discovery process has stalled, particularly in the high-end residential market and in commercial property. A property consultant hosted by Jefferies’ Indian office this month estimated that such forced sales could lead to a 30% write-down in values on loans extended to the stressed developers,” he stated