With the loan moratorium coming to an end, banks are keeping a close watch on their loan book, and the focus is now on the contours of the debt restructuring package.
Analysts believe that up to seven to eight per cent of systemic loans may be restructured, but job losses and wage cuts along with the continued economic slowdown have led to more uncertainty, especially for retail loans.
“The number of customers under moratorium has come down as customers with the ability to repay have paid back loans. But for the remaining, banks have to remain watchful,” said a banker who did not wish to be named, adding that in some cases there could be a demand for loans.
“According to ICRA estimates, loans under moratorium would have come down to about 20 per cent by August-end from about 25 per cent or so at end July or beginning August. Of this, restructured accounts could amount to seven to eight per cent,” said Karthik Srinivasan, Senior Vice President, Group Head - Financial Sector Ratings, ICRA.
However, technically, even a standard account may ask for restructuring but what stand the banks will take on such an issue is still not clear,” he further noted.
Podcast | RBI's loan moratorium ends today. What's next for banks?
“With the moratorium ending in August, banks have accelerated collection efforts and to soon launch board-approved restructuring for retail loans with possibly high reliance on principal moratorium for the next six months,” said a note by Emkay Global Financial Services.
It said the moratorium rate for large banks is now estimated between nine per cent and 20 per cent while for private banks with high exposure to SMEs and microfinance, it is between 30 per cent and 50 per cent.
“Banks, in general, expect nearly five per cent to seven per cent of the systemic loans to be restructured, while some private banks may adopt an aggressive NPA recognition policy instead of restructuring, which will keep provisions elevated,” it further said.
Noting that the situation is changing almost every day, Kuntal Sur, Partner, Financial Risk and Regulation, PwC India said banks are aware that there will be deterioration on asset quality and have already made provisions over the last two quarters and they are also raising capital to absorb the impact of any stress. “The provisions are being created based on differentiated macro scenarios and taking into a sectoral view to get an appropriate provisioning estimate,” he further said.
Three out of four entities that availed of the moratorium are rated in the sub-investment grade, according to credit rating agency CRISIL. Most of them were grappling with a slowing economy before the pandemic began, it added
The severely curtailed business activity that followed in the first quarter of this fiscal had cramped cash flows, so the moratorium came as a big relief, the agency said.
“It has also prevented a sharp weakening of their credit profiles. While the moratorium ended today, debt restructuring announced by the RBI recently can play a crucial role in supporting the credit profiles of mid-sized companies,” it added.