Loan moratorium to stave off asset quality concerns, say Analysts

Analysts hailed the RBI move to allow a three-month moratorium on repayments, saying this will stave off an asset quality concern for the time being but warned of the same given the very low growth rate.

“Permitting banks and NBFCs to grant a three-month moratorium on loan repayments will soften the negative credit impact that coronavirus has had on their borrowers in the near-term,” Moody's said in a note.

The report was quick to warn that there are still material downside risks to asset quality given the halt in the economy, impact of which will not be known until a few quarters after the end of the moratorium.

Meanwhile, towards the evening the RBI issued detailed guidelines on the moratorium on all loans including agricultural term loans, retail and crop loans where repayments fall between March 1 and May 31.

The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period and interest shall continue to accrue on the outstanding portion of the term loans during the moratorium, the RBI said.

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Instalments will include the following payments falling due from March 1 to May 31: principal and/or interest components; bullet repayments; EMIs and credit card dues, the RBI said.

In respect of working capital facilities sanctioned as cash credit/overdraft, lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1 and May 31.

The accumulated accrued interest shall be recovered immediately after the completion of this period.

Sanjay Doshi of KPMG India said the moratorium on repayments and interest payment will help the industry to manage its cash flow and working capital requirement in the short term. The onus is now on the financial institutions to ensure better credit support to the corporate.

“However, given the challenging times many corporates will have significant pressure on their income stream. Banks will have a tough job in deciding the allocation of credit.

"Also, overall NPA recognition in the medium to long term will need relook and evaluation as the depth of the crisis will be understood better. Also we need to assess the extent of global recession and its impact,” he said.