It is not clear at the moment whether this forbearance will be extended to non-bank financial institutions (NBFIs). But the probability of this is high, considering the impact that the NBFI liquidity squeeze and a slowing economy have had on the MSME and real estate sectors.
In recent years, banks
have preferred to lend to NBFIs, which lend heavily to the real estate and MSME sectors. This was a seen as a way to deploy their excess liquidity, while limiting their own direct exposure to these areas, Fitch added.
have a poor track record with restructuring. The RBI's asset-quality reviews in FY16 and FY18 found that a dominant share of loans restructured post-FY12 had degraded into non-performing loans (NPLs). In that context, Fitch will make appropriate adjustments to objectively assess the performance of the underlying loan book of its rated entities in India. This will be done to ensure their comparability with those of global peers.
The RBI's latest measures also nudge banks
to lend more for specific purposes, namely automotive and housing purchases, and to the MSME sector. Banks can now knock off the equivalent of additional loans disbursed to these fields between end-January and end-July 2020 from their net demand and time liabilities for calculating their cash reserve ratio.