Moratorium burden easing as Indian economy limps back to normalcy

Bankers had feared anything between Rs 3 trillion and Rs 10 trillion in bad debt, as a fallout of the moratorium stress | Illustration: Binay Sinha
There is something strange about the moratorium episode. According to Reserve Bank of India (RBI) data, nearly 68 per cent of public sector banks’ (PSBs’) outstanding book and 31 per cent of private sector lenders’ books were under moratorium as of April 30.

As much as 80 per cent of the individual borrowers of PSBs and 42 per cent of private sector banks had opted for the facility.

For Bandhan Bank, 90 per cent of the loan book was under the moratorium. And yet, after the June quarter, moratorium numbers have nosedived.

Bandhan, for example, reported just 24 per cent of its book under moratorium. Excluding the impact of floods in Assam and Bihar, and localised lockdowns from calculation, “the core moratorium book is not more than 10 per cent”, said MD and CEO Chandra Shekhar Ghosh.

Other banks are seeing a similar trend. This is because agents can now pay visits for recovery, and also because the economic situation has not turned as dire as feared. It has come as a great relief for analysts and bankers, who had feared anything between Rs 3 trillion and Rs 10 trillion in bad debt, as a fallout of the moratorium stress. 

IDFC First, which had started operations at the same time as Bandhan (five years ago), expects loans under moratorium to fall below 10 per cent of its book by August, from 45 per cent at the end of Q4 and 28 per cent at present. “We are seeing an improvement in collections,” said V Vaidyanathan, MD and CEO of IDFC First.

Similarly, ICICI Bank’s moratorium book reduced to 17.5 per cent at the end of June, from 30 per cent at end-April. In case of Axis Bank, just about 9.7 per cent of advances are now under moratorium, from 25-28 per cent in the first phase.

Kotak Mahindra Bank said that as of July 10, around 9.65 per cent of loans were under moratorium, down from 26 per cent in April. Mostly the retail segment had opted for moratorium in larger numbers. In the wholesale segment, SMEs had availed of the moratorium more than large corporates.

For IndusInd Bank, the moratorium book shrunk to 16 per cent in June, against 50 per cent in April.

RBL Bank also said loans under moratorium fell to 13.7 per cent in June from 33 per cent in Q4. The wholesale book saw a sharp reduction in moratorium cover and now stands at just 5 per cent of the loan book, from 22 per cent earlier. In micro-banking, 77 per cent of the bank’s customers have started paying EMIs.

Credit card spend has touched 75 per cent of the pre-Covid level across banks.

At the same time, industry veterans like HDFC Chairman Deepak Parekh and SBI Chairman Rajnish Kumar have advised against another extension. Bandhan’s Ghosh said it would be better to extend the NPA classification period to 180 days from 91, instead.

While there are fears of NPAs surging once the moratorium ends — with the RBI expecting the same to rise to 12.5 per cent by March 2021 from 8.5 per cent in March 2020 — the sharp reduction in moratorium numbers allays such fears.

Fear, friend, and accounting

Many individuals and firms opted for the moratorium when it was first offered (on March 27), fearing a turn of events for the worse. Only later was it clarified that the interest foregone would only be added back as principal.

Many customers who had opted for it are making part payments, said Rakesh Sharma, MD and CEO of IDBI Bank.

Extending the facility was also left to banks’ discretion. Axis Bank, for example, has its own internal metrics to decide who gets it, said officials in a media call. SBI, on the other hand, was proactive in giving additional loans to over 400,000 MSMEs. Its moratorium book was just about 22 per cent in April, as most of its individual customers were government employees or from the defence sector who hardly witnessed any salary cut/job loss, said managing director C S Shetty.

On the other hand, there are health-first policies adopted by some banks that have yielded rich dividends.

“More than 60 per cent of our loan book is micro-credit. In the first phase, instead of recovery, we went to customers to distribute masks wherever possible. That created a goodwill and strong loyalty base,” said Ghosh.

Vishwavir Ahuja, MD and CEO of RBL Bank, said the rural economy has recovered well and they expect the NPA situation to stabilise and improve from Q3FY21.

Opt in or out

PSBs had offered moratorium to all, except those specifically requesting to opt out. Private sector banks and NBFCs asked customers if they wanted a moratorium, putting a sunset clause on such requests.

At present, most PSBs have both the ‘opt in’ and ‘opt out’ options. For a few private banks though, there is no opting out for three months once opted in.

“During moratorium 1.0, we gave 100 per cent relaxation on the retail book. On the corporate side, we adopted the ‘opt in’ method and 20 per cent of corporate clients took it. In moratorium 2.0, we have offered ‘opt in’ across all products in retail and corporate, except micro-finance,” said Sumant Kathpalia, MD and CEO of IndusInd Bank.  

Most banks, though, took advantage of RBI norms and put all stressed customers under the moratorium bucket even if they did not opt for it. If a customer defaulted, the bank would have marked them as someone who opted for a moratorium, to protect its book.

“There would be customers who availed of the moratorium prior to end-May but not in June, and have overdues. The bank is engaging with them. Should they come under moratorium, the overall moratorium level may rise a couple of percentage points, depending on the pool of such loans,” said ICICI Bank.

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