Covid effect: RBI extends EMI moratorium for another three months

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Updated: May 23, 2020 2:06 AM

Reserve Bank of India (RBI) governor Shaktikanta Das on Friday allowed borrowers to pause loan repayments for three more months till August 31. The central bank has granted a moratorium instead of providing a one-time recast of loans.

Experts point out that move by RBI may pose a liquidity challenge for NBFCs in near term.Experts point out that move by RBI may pose a liquidity challenge for NBFCs in near term.

Reserve Bank of India (RBI) governor Shaktikanta Das on Friday allowed borrowers to pause loan repayments for three more months till August 31. The central bank has granted a moratorium instead of providing a one-time recast of loans.

With the current extension, the regulator has provided a six-month breather to borrowers — both corporate and retail — whose cashflows have been hit by the pandemic. Like before, lenders will continue to charge interest during moratorium period from borrowers. To ease pressure on interest payments for corporate borrowers, RBI has permitted repayment of the accrued interest in tranches till March 2021.

The RBI has preferred to extend the moratorium and continue to assess the situation as compared to market expectations of a one-time restructuring package, says Karthik Srinivasan, group head, Financial Sector Ratings, Icra.

However, it is not clear whether non-banking financial institutions will get the benefit, even as they will have to give a moratorium to their borrowers. Experts point out that move by RBI may pose a liquidity challenge for NBFCs in near term.

Krishnan Sitaraman, senior director, Crisil Ratings, said that liquidity challenge for NBFCs may get accentuated if banks don’t extend moratorium to them. Given the conditions in the credit markets, NBFCs will continue to face funding constraints.

NBFCs have provided moratorium to its borrowers but its lender banks are providing moratorium to NBFCs on a case to case basis only. SBI chairman Rajnish Kumar on Friday said that bank would continue to adopt a selective case by case process in extending moratorium to non-bank lenders. “We have got moratorium on less than 10% of our exposure to banks, despite asking for it,” an NBFC official told FE.

Lenders say the rules for availing moratorium for retail borrowers will be same like last three months. SBI chairman Kumar said the bank will extend moratorium to customers by three months from June 1.

“Customers should only avail the scheme if they need it, as there will be interest charges,” a senior bank official told FE. This means a customer will have to bear extra interest cost, if he decides to avail moratorium. The banks will continue to accumulate interest during the period of non-payment and the same will be added to remaining easy monthly installments (EMIs).

A six month long moratorium may also impact credit discipline of borrowers, experts say. Given that economic activity will continue to be crimped due to the pandemic, the ability of borrowers to start paying loans may impact the lenders and accretion of non-performing assets may rise. Icra’s Srinivaasan says, “With the extension of moratorium and asset classification, the deterioration in reported asset quality will start becoming visible with Q3FY2020 results.”

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