RBI’s moratorium extension sends financials tumbling, Bajaj Finance and SBI hit new 52-week lows

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Published: May 22, 2020 1:46:06 PM

The Reserve bank of India’s decision to extend the loan-moratorium period for another three months, although seen as a positive for borrowers, is not so enticing when it comes to lenders.

The extension of moratorium also sent stocks such as State Bank of India,Bajaj Finance and even Mahindra and Mahindra Finance down, as each of them hit their respective 52-week low trading values.

The Reserve bank of India’s (RBI) decision to extend the loan-moratorium period for another three months, although seen as a positive for borrowers, is not so enticing when it comes to lenders. Reacting to the RBI’s announcements, Bank Nifty tanked 2.7% while the Nifty Financial services index dropped 3.22%. The extension of moratorium also sent stocks such as State Bank of India, Bajaj Finance, and Mahindra & Mahindra Finance down, as each of them hit their respective 52-week low trading values. All the financial stocks on the S&P BSE Sensex or the NSE Nifty 50 were trading in the red.

For banks, the extension of moratorium by another three months has two sides. The clarity on asset quality picture of the lenders will now emerge by March 2021 instead of September 2020. There is a risk of moral hazard issue creeping in, as borrowers who have the ability to pay, may even opt for a moratorium,” said Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities. The loan extension has sent all financials on the S&P BSE Sensex tumbling. SBI fell close to 1% while HDFC Bank went down by 2% and HDFC fell 5% similar to ICICI Bank share price. 

The RBI has also announced that payment of interest on Working Capital Facilities will be deferred by 3 months, while the deferred interest can be converted into a funded interest term loan repayable by March 31, 2021. “Extension of moratorium is good for the economy but in substance will negatively impact banks and NBFCs. As a whole, RBI has taken a calibrated approach to save the economy rather than favouring banks,” said Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote. The central bank had announced the loan-moratorium on payment of all term loans. 

With the extension of the loan-moratorium, experts say clarity on the balance sheet of lenders will only emerge in March next year. “… What is needed is to remove the risk averseness as there is substantial liquidity in the banking sector. The rising food inflation rate could be a challenge to the RBI as it is following the inflation targeting regime. Similarly, the extension of the moratorium would bring in some relief to the borrowers, but it can put pressure on the bank’s balance sheet.” Deepthi Mathew- Economist- Geojit Financial Services

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