Bullet repayments, equated monthly installments (EMIs) and credit-card dues will all be eligible for deferment under the moratorium, without the accounts being classified as bad loans.
While the central bank on Friday left it to lenders to decide which customers would be eligible for the three-month holiday for term loan repayments, bankers were clear it was a directive from the Reserve Bank of India and there was no question of not heeding it.
Lenders have been permitted to offer borrowers –corporate and retail — a moratorium on repayments. Interest payments for working-capital facilities will also be entitled to the three-month breather.
Bullet repayments, equated monthly installments (EMIs) and credit-card dues will all be eligible for deferment under the moratorium, without the accounts being classified as bad loans. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
State Bank of India (SBI) chairman Rajnish Kumar said, “Our term loan book is fairly large and I think Rs 2-2.5 lakh crore gets paid every year, so for three months it would be Rs 50,000-60,000 crore.” Kumar said a system-wide moratorium was appropriate given the Covid-induced disruption is being felt across 75% of sectors.
Virendra Kumar Sethi, GM and head – mortgages and retail assets, Bank of Baroda, explained that any person who does not want to repay during this period will not be penalised. “The repayment period will be extended by three months. For instance, if the repayment period for a loan was 120 months and 70 months remain, it will be extended to 73.” BoB has roughly Rs 5,000 crore worth of retail repayments due in the relevant three-month period.
The board of a lending institution can take a call on how to offer the moratorium — in one clean sweep to all borrowers or by picking and choosing. Siddhartha Mohanty, MD & CEO, LIC Housing Finance, said, “My understanding is that individual borrowers have to apply for the moratorium. If they say they have been impacted, accordingly the office will take a call. Since this is a direction, they will be allowed.”
The RBI said the moratorium will apply to all term loans, including agricultural loans, retail and crop loans, with installments falling due between March 1, 2020 and May 31, 2020.
The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period, the RBI said. Banks, non-banks, mortgage financiers, small finance banks and co-operative banks have been permitted to offer borrowers — corporate and retail — a moratorium on repayments.
An indirect salutary outcome of the three-month moratorium could be a short-term improvement in lenders’ asset quality. “Till June, there will not be any fresh slippages. It will have a significant positive impact on asset quality,” said a senior executive with a mid-sized public-sector bank, adding, “At this moment, a three-month relaxation on asset classification is sufficient, but as the situation develops the central bank may have to extend it further.”