The third (October-December) quarter could be a testing one for banks as slippage in accounts which opted for moratorium between March 1 to August 31, 2020 period, could start showing up if repayments don’t start, according to Rajkiran Rai G, MD & CEO of Union Bank of India.

In an interaction with BusinessLine, Rai felt that restructuring viable accounts whose operations have been impacted by the Covid-19 pandemic could be the only saving grace.

The chief of India’s fifth largest public sector bank said his bank expects to disburse about ₹10,000 crore by October-end to businesses, including micro, small and medium enterprises (MSMEs), under the Guaranteed Emergency Credit Line (GECL) scheme. Edited excerpts:

With banks implementing the Covid-19 regulatory package, what effect will it have on your first-quarter performance?

Due to the regulatory relaxation, non-performing asset (NPA) recognition in the case of borrowers who have opted for moratorium on term loans and deferment of interest on working capital facilities, will not be there. But NPAs will arise due to other reasons (because of accounts slipping). However, the quantum will be less due to the moratorium. Because the loans will almost be of similar size, interest income also will remain same (as the preceding quarter). The impact will be on the fee income — export-import has been impacted, the forex business would have come down, and loan underwriting would have come down. So, the fee income could come down a bit. Otherwise, our income level will remain same. Expenditure will also remain same. So, I don’t think there will be a major change in our balance sheet for Q1 (April-June). The risk is that, if at a later date, moratorium accounts become NPAs, the unrealised interest will be reversed.

How will the next couple of quarters pan out?

The moratorium has been extended up to August 31, 2020 (from May 31, 2020). Now the way the nationwide lockdown is being eased, I don’t think there will be further extension of moratorium. It may not be required, because things will gradually return to normalcy. So, from early September onwards, things could become normal. Now, if some of the accounts, which were in the Special Mention Account-II category (principal or interest payment overdue for 61-90 days) when the moratorium was given, do not make repayment in September, then in Q2 (July-September quarter) itself they will slip. That may not be a big amount. Then Q3 (October-December) will be a testing quarter because all the borrowers who have taken moratorium will need to start repayment. So, the only saving grace could be a good restructuring scheme, which we are expecting. The RBI should give a restructuring scheme well in advance, maybe this month or the next, because there is clarity regarding the end of the moratorium. We told RBI that we don’t want to restructure anything which is out of the way.

When it comes to restructuring, did banks seen any modification to the RBI’s June 7, 2019 circular?

We have sought certain modifications to the RBI’s circular on “Prudential Framework for Resolution of Stressed Assets”. Now, if the restructuring is done with the same promoter, then the account becomes NPA. In the current environment, changing the promoter is not easy. Since there are no buyers in the market today, that will destroy value. So, it is better to do restructuring, provided we are comfortable with the promoter.

How much do you plan to lend under the emergency credit line?

We are planning to disburse roughly about ₹10,000 crore under the GECL to all business enterprises, including micro, small and medium enterprises, by October-end 2020. We have made it (the sanctions) system-driven. Since additional loans are being sanctioned to existing borrowers, data pertaining to them is already there in our lending automation system platform. We have sent SMSes to all eligible borrowers. Sanctions have already started.

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