At present, borrowers who opted for the moratorium are much more indebted than they would have been had there been no lockdown. At the same time, they do not have the turnover to support the higher debt. Current rules require borrowers to repay their additional dues pertaining to the moratorium period by March 2021.
The Reserve Bank of India (RBI) had issued a circular on May 23 in respect of working capital facilities sanctioned in the form of cash credit/overdraft, where banks have allowed deferment up to August 31, 2020. It said lenders have to recover the dues either immediately, or in instalments or a bullet repayment but not later than March 31, 2021.
The March 31 deadline applies to the moratorium availed under working capital limits. In the case of term loans, the dues can be back-ended by extending the tenure of the loan. For instance, home loan customers who have availed the moratorium can opt for the same EMI and an extended tenure, or they can pay a higher EMI keeping the same tenure. This will also not apply to loans extended under the government’s guaranteed emergency credit line, which has a three-year tenure.
“Some of the recovery seen in June is tapering off as it was an outcome of pent-up demand for the earlier months of severe lockdown,” said the chief of a private bank. He added that sales are not expected to normalise in September 2020 (after the moratorium concludes in August-end) as was originally envisaged. If borrowers are not able to repay their dues by March 2021, banks will have to classify them as non-performing assets (NPAs) by June 2021. To avoid these defaults, borrowers would need to be given time beyond March 2021.
A report by SBI’s chief economic adviser Soumya Kanti Ghosh last month had estimated that 35-40% of the average portfolio is under a moratorium for the banking system. “The Q4 results of the banks indicate a sequential decline in NPA numbers, which is because the moratorium has prevented any loan account to downgrade and helped the banking industry in reining in fresh slippages, but the real picture will emerge after the September quarter,” the report said.
Bankers say that this relief would be required in addition to the specific restructuring for sectors such as aviation, hospitality and retail. “Some of these sectors would, in fact, require money to preserve their assets until demand picks up,” said a banker.