E-Paper
Moratorium likely to cost banks ₹ 7k crore
The government has agreed to make good compound interest refunds of loans up to ₹2 crore during the March 1-August 31 moratorium and has already credited ₹6,500 crore to banks in this respect.
Compound interest refunds for loans above ₹2 crore during last year’s moratorium will cost Indian lenders over ₹7,000 crore this quarter, given the government’s unwillingness to compensate them for it, two people aware of the matter said.
The government has agreed to make good compound interest refunds of loans up to ₹2 crore during the March 1-August 31 moratorium and has already credited ₹6,500 crore to banks in this respect. However, it has made no commitment about the rest, forcing bankers to take the hit.
“The Indian Banks’ Association has taken up the matter with the government,” the head of a public sector bank, one of the two people cited above said.
“Banks have no choice but to refund the borrowers. Each bank will have to take a hit of anywhere between ₹300-400 crore. We cannot challenge this (Supreme Court) order also. All other parts of the order are good. We don’t want to reopen this order. Maybe a one-time hit is okay,” the banker said on condition of anonymity.
Last month, the Supreme Court ordered that no compound interest can be charged from borrowers for the entire six-month loan moratorium. On April 7, the Reserve Bank of India (RBI) directed all lenders to put in place board-approved policies on refunding compound interest.
The central bank also said all lenders must disclose the amount to be refunded in their March quarter financial statements. It said this relief will be applicable to all borrowers, irrespective of whether the moratorium was fully or partially availed or not availed.
The banking regulator said asset classification for borrowers who did not avail of the moratorium would continue as per Income Recognition and Asset Classification (IRAC) norms, and for borrowers who availed of the moratorium, asset classification would be as per IRAC norms with effect from September 1, 2020.
Rating agency Icra said it expects banks’ non-performing assets to rise to 9.6-9.7% by March 31, 2021, and to 9.9-10.2% by March 31, 2022, from 8.6% on March 31, 2020.
In spite of the impact of Covid on the debt servicing capability of borrowers, fresh slippages or incremental bad loans stood much lower at ₹1.8 lakh crore in April-December against ₹3.6 lakh crore during 2019-20.
According to Icra, this was driven by relief measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under the guaranteed emergency credit line.
However, as the impact of these interventions wanes, asset quality pressures may resurface, it said.
Still, banks’ net NPAs are expected to be relatively lower because of significant provisions made on legacy bad loans. Therefore, with the decline in net NPAs and improved capital position driven by fresh capital raise during FY21 as well as internal accruals buffered by a sharp decline in bond yields, the solvency position for the banks stands relatively better.
