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Home / Business News / Banks wary of extending moratorium on loans, Parekh says it will hurt NBFCs

Banks wary of extending moratorium on loans, Parekh says it will hurt NBFCs

The central bank may allow banks to continue offering moratorium to stressed sectors such as aviation and hospitality, Mint reported on 22 July

business Updated: Jul 28, 2020 07:15 IST
Gopika Gopakumar
Gopika Gopakumar
Deepak Parekh Chairman of Housing Development Finance Corporation in Mumbai.
Deepak Parekh Chairman of Housing Development Finance Corporation in Mumbai.(MINT)

Housing Development Finance Corp. Ltd (HDFC) chairman Deepak Parekh on Monday requested Reserve Bank of India governor Shaktikanta Das not to extend the loan moratorium beyond August, saying doing so would hurt smaller non-bank lenders.

The central bank may allow banks to continue offering moratorium to stressed sectors such as aviation and hospitality, Mint reported on 22 July. The regulator has been gathering data on loan repayments and borrowers’ cash flows since the lockdown began to understand their challenges.

“We see that even entities that have the ability to pay, whether it’s corporates or individuals, are taking advantage of this and deferring payment. We hear that there is some talk of extending the moratorium. It’s going to hurt and hurt smaller NBFCs,” Parekh told Das at a webinar organized by the Confederation of Indian Industry (CII).

According to the RBI’s latest Financial Stability Report, half of the total loan outstanding was under moratorium as on 30 April 2020, of which small borrowers accounted for 65%, corporates 42% and individuals for 55.3% /chk numbers - Do individuals include small borrowers?/.

Parekh suggested that the RBI should look at buying corporate bonds like some central banks. He also said financial institutions should be allowed to restructure loans to avoid future problems.

Governor Das did not comment on the moratorium but ruled out RBI buying corporate bonds.

“The law doesn’t permit RBI to buy corporate bonds. We have to recognize the fact that liquidity support we have gone through long-term repo operations//check sentence//. The issuance of corporate bonds in the first quarter is about Rs 1 trillion, much more than the issuance in the corresponding first quarter of last year. Most of the resources have gone into AAA- and A-rated bonds. Considering the kind of complaints which we saw in March, the position has improved. RBI remains extremely vigilant. We are monitoring the situation. As and when required, we will not hesitate to take action,” Das said.

The financial stability report has projected non-performing assets to rise to 20-year high to 12.5% of total advances by March 2021. The central bank has warned that if the economic conditions worsen further, the ratio may soar to 14.7% under the very severely stressed scenario.

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