Money & Banking

75% of borrowers to benefit from interest waiver: Crisil

Our Bureau. Mumbai | Updated on October 26, 2020

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Over 40 per cent of system credit and 75 per cent of borrowers will benefit from interest-on-interest concession under the recently announced government scheme, according to Crisil Ratings.

This will cost the exchequer about ₹7,500 crore. The cost to exchequer would have halved if waiver was allowed only where moratorium was availed of, as per the credit rating agency’s analysis.

“From a borrower’s perspective, the benefit would be relatively higher for those who had availed of higher-yielding loans.

“Consequently, borrowers of unsecured, micro and gold loans will benefit more than those who had taken home loans,” the credit rating agency said.

Crisil underscored that while the waiver will offer a modicum of relief in terms of cash flows, repayment discipline among borrowers after the moratorium ended – and thus medium-term delinquencies at banks and NBFCs – will bear watching.

In view of the unprecedented and extreme pandemic situation, the Central government, last Friday, approved the ‘scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months (from March 1to August 31) to borrowers in specified loan accounts.’

“Ex-gratia payment of interest-on-interest by banks and non-banking finance companies for the moratorium period would tantamount to about ₹7,500 crore benefit for eligible borrowers – with the tab being picked up by the government,” Crisil said.

The benefit will be extended to borrowers with outstanding loans (standard as on February 29) of less than ₹2 crore under select categories, irrespective of whether the moratorium was availed of or not.

Such loans account for more than 40 per cent of systemic credit and 75 per cent of borrowers, the agency said.

Crisil assessed that with the government expected to bear the cost of waiver on small-borrower loans, the potential burden on lenders – already facing profitability pressure and asset-quality challenges because of the Covid-19 pandemic and challenging macroeconomic environment – has eased.

“Also, to ensure effective and timely implementation, the government has asked lenders to credit the amount to eligible borrowers latest by November 05, 2020.

“...While lenders have to apply for reimbursement by December 15, the timelines for receipt of funds from the government are yet to be notified,” Crisil said.

Krishnan Sitaraman, Senior Director, Crisil Ratings, said: “Crisil’s analysis shows a complete interest waiver (including interest on interest) for eligible loans up to ₹2 crore would have meant a staggering (about ₹1.5 lakh crore) impact.

“This could have posed significant challenges for the government as well as the financial sector. Waiver of only interest-on-interest will have a much milder and manageable impact.”

Malvika Bhotika, Associate Director, Crisil Ratings, said: “Extending the benefit to all eligible borrowers irrespective of whether they have availed of moratorium or notwill assuage concerns over unfair treatment that borrowers not availing of moratorium could have otherwise harboured.”


Published on October 26, 2020

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