Moving on moratorium: Repay if you can, else take a break, say top banks

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Published: April 2, 2020 6:30:44 AM

SBI has specified that interest shall continue to accrue on the outstanding portion of the term loan during the moratorium period.

They also pointed out that in case if banks have to absorb the NPV impact of the deferred payments, which was unlikely, it could lead to an impact of 7-10 bps on net interest margins (NIMs).They also pointed out that in case if banks have to absorb the NPV impact of the deferred payments, which was unlikely, it could lead to an impact of 7-10 bps on net interest margins (NIMs).

Leading lenders have asked customers to ‘opt in’ for a moratorium on loan repayments telling them to apply for the breather if they want one. Some banks, though, have recommended to borrowers, who do not have cash flow issues, to refrain from taking a repayments break.

HDFC Bank said, “We encourage customers with adequate funds to continue paying during this period to avoid the extra interest charges and tenor extension.” State Bank of India (SBI), too, said on its website customers who do not want to defer their instalments may continue to pay in the usual course.

Nonetheless, there are concerns the holiday could last longer than planned. Analysts at Kotak Institutional Equities cited past experience to say the restructuring or moratorium window usually tends to be much longer as regulators address the near-term challenges. “A prolonged moratorium or restructuring window tends to be negative for the sector as the ability to understand the true loan book status or profitability comes under discussion,” analysts wrote.

Moreover, some apprehend pressure on lenders’ margins. “Assuming all of the installments are placed under moratorium, it will amount to 4-5% of loans for the banks and around 25-50% of the net worth,” analysts at Nomura wrote. They also pointed out that in case if banks have to absorb the NPV impact of the deferred payments, which was unlikely, it could lead to an impact of 7-10 bps on net interest margins (NIMs).

Even those that have offered retail borrowers a blanket moratorium — Bank of Baroda (BoB) and Central Bank of India — have said individuals can, if they wish continue to repay their loans. Kotak Mahindra Bank (KMB) said it may reassess the working capital cycle of an enterprise factoring the Covid-19 impact on the business.

It added that in case the working capital arrangement was under a consortium, the reassessment of limits would need to be harmonised with the assessment of the lead lender.

SBI has specified that interest shall continue to accrue on the outstanding portion of the term loan during the moratorium period. The bank clarified that borrowers would need to pay an additional amount it term loan repayments are rescheduled.

KMB will offer deferment of interest for the months of March-May, 2020. For working-capital and KCC borrowers and who avail the moratorium, “The accumulated interest for this three-month period should be serviced by the borrower immediately after the moratorium period,” KMB said on its website.

Where borrowers’ cash flows are more likely to have been hit, ICICI Bank is taking the opt-in route; for others it’s the ‘opt out’ route.

HDFC Bank will also consider moratorium requests where there are overdues prior to March 1, 2020. ICICI Bank is offering a blanket moratorium to categories such as Kisan Credit Card (KCC), farm equipment (FE), self-help group (SHG)/joint lending group (JLG), loans given through business correspondents (BCs), jewel loans, corporate farmer finance, unsecured business lending, small business loans, loans against credit-card receivables, dealer funding and two-wheeler loans.

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