India’s number of willful defaulters — an entity or a person that has does not pay back a loan despite the ability to repay it —increased before the country was locked down for almost two months late March to contain the spread of the coronavirus pandemic, data shows.
Lenders filed 1,251 cases to recover Rs 24,765.5 crore, said an analysis of March quarter data by TransUnion Cibil, which maintains data on cases filed against willful defaulters. The numbers are released with a lag and not all lenders update with the same frequency. The analysis considered 15 lenders, which saw an increase in the number and value of outstanding willful defaulter loans. Defaulters above Rs one crore was considered for this analysis.
Experts said defaults might increase as the economic stress caused by the pandemic deepens. The lockdown caused all economic activity to come to a halt, affecting businesses and their ability to pay back loans to banks.
The lockdown meant that the National Company Law Tribunal’s (NCLT) hearings on businesses facing liquidation of assets were affected. This may well create a situation which emboldens defaulters, said Anand Tandon, an independent market analyst.
“There was some fear of NCLT, now you have put that in abeyance,” he said.
“It should be worse,” said a lawyer who has handled cases at NCLT and who was referring to numbers in financial quarters ahead.
Public sector banks accounted for around 82 per cent of the total increase in willful defaulter amounts.
Private sector banks accounted for 17.7 per cent. The rest was from the foreign bank segment.
The outlook for the banking sector remains hazy after the Reserve Bank of India’s (RBI’s) pause on loan repayments, noted a June 30 ‘Sector Update’ report on banking by the retail research arm of brokerage firm ICICI Securities.
“The economic slowdown kept business growth in single digits, which further got accentuated by lockdown amid Covid. Moratorium by the RBI kept asset quality stable though a revival in repayment (post end of moratorium in August) remains uncertain,” said the report authored by research analysts Kajal Gandhi, Vishal Narnolia and Yash Batra.
“Banker commentary suggests decline in moratorium to the extent of 5-10%, in unlocking phase. However, given standstill economic activity during lockdown and increased risk aversion, asset quality pains cannot be ruled out. Bottom 5-10% of moratorium customers remain most vulnerable,” it added.
There could be an increase in stress bad loans or non-performing assets (NPAs) in segments including small and medium enterprises (SMEs), according to a June 25 report on banks by HDFC Securities.
“While the moratorium will optically limit GNPAs (gross non-performing assets)…till…(the first half of the current financial year)…asset quality deterioration is inevitable… Under various scenarios, we project a relatively greater increase in NPAs in the services/ SME and retail/ personal loan segments,” said the report by analysts Darpin Shah, Aakash Dattani and Punit Bahlani.