Tag: Moratorium

RBI Governor to deliver an unscheduled speech at 10 a.m.

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Reserve Bank of India said Governor Shaktikanta Das will make a speech Wednesday, an unscheduled appearance as ferocious new coronavirus wave devastates the country.

The address will be broadcast at 10 a.m. local time, the RBI said on Twitter, without providing further details.

The Covid-19 wave that has slammed India in recent weeks will probably worsen before it starts to taper off sometime later this month, forecasters warn. Pressure from industry groups has begun mounting on Prime Minister Narendra Modi to impose lockdowns to stem its spread, a move he has so far resisted to avoid the economic damage suffered last year.

The RBI has augmented fiscal support measures from Modi’s government with loan holidays and cash injections, as well as by cutting interest rates. It has pledged to keep monetary policy loose though its room to act has been constrained by inflation concerns.

Das has been meeting with with bankers and shadow lenders since last month to discuss topics including the current economic situation, potential stress to balance sheets, credit flows and liquidity. CNBC reported Tuesday that bankers have requested relief, including payment moratoriums, citing banking sources.

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Banks demand deadline extension for Covid packages

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Our Bureau

Banks have petitioned the Reserve Bank of India (RBI) that the 180-day timeline for implementing resolution plans for borrower accounts under the August 6, 2020 circular on “Resolution Framework for Covid-19-related Stress” should be extended as few of them are facing headwinds due to second pandemic wave.

As per the circular, resolution of exposures (other than personal loans) must be implemented within 180 days from the date of invocation (not later than December 31, 2020). So, the resolution plan has to be implemented by June-end 2021. But in view of the adverse impact of Covid-19, banks want leeway of 90 more days in implementing the resolution plan.

Loan moratorium

Banks also want RBI to consider a three month loan moratorium for retail and micro, small and medium enterprise (MSME) borrowers so that they can weather the Covid challenge without worrying about servicing loans.

Banks have also requested the Government to extend the emergency credit line guarantee scheme (ECLGS) for Business Enterprises/ MSMEs beyond the June 30, 2021 deadline. This scheme is aimed at helping Business Enterprises/ MSMEs meet their working capital needs. A banker observed that RBI is examining lenders’ pleas and is likely take a call by May-end.

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Interest on interest: IBA sends representation to Finmin

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The Indian Banks’ Association (IBA) has sent a representation to the Finance Ministry to enhance the scope of its previous ex-gratia scheme to cover the refund/adjust the ‘interest-on-interest’ charged to the borrowers during the Covid-19 related moratorium period — March 1, 2020 to August 31, 2020.

As per the Supreme Court’s judgment (in the matter of Small Scale Industrial Manufacturers Association vs Union of India & Others and other connected matters) on March 23, 2021, all borrowers (including those having loan exposure of above ₹2 crore) will be eligible for waiver of interest on interest in respect of the pandemic-related loan moratorium.

Banking sources said the payment of the interest-on-interest component by banks will set a precedent. So, IBA has suggested that they should be compensated by the government.

The government had picked up the tab towards waiver of interest on interest for loans up to ₹2 crore, irrespective of whether moratorium was availed or not, following the top court’s order in October 2020. This cost the exchequer about ₹6,500 crore.

Clamour for moratorium

“There is an additional load on banks due to the interest-on-interest provision. Now the issue is not about the amount but of setting a precedent, especially when we are in the midst of the second-wave of Covid-19 pandemic and there is once again the growing clamour for loan moratorium. We are still waiting for some more clarification; maybe we will get some reversal benefit on the interest-on-interest provision,” said a bank executive, who did not wish to be named.

While, the Centre had earlier picked up the tab for waiver of interest on interest on loans up to ₹2 crore, this time around, lenders have to bear the cost.

Most banks and NBFCs have already made provisions for the interest-on-interest payment in the fourth quarter of 2020-21 but are likely to implement it this quarter after the completion of the statutory audit.

Ex-gratia payment under the October 2020 Scheme covered borrowers (micro, small and medium enterprise, education, housing, consumer durables, credit card dues, automobile, personal loans to professionals and consumption loans) having sanctioned limits and outstanding amount of up to ₹2 crore (aggregate of all facilities with lending institutions) as on February 29, 2020.

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RBI to strengthen risk-based supervision of banks, NBFCs, BFSI News, ET BFSI

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The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

In case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.

EOI said the consultant would be required to work in close co-ordination with officers of RBI’s Department of Supervision in Mumbai.



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Put in place policy to refund ‘interest on interest’ charged during moratorium, BFSI News, ET BFSI

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MUMBAI: The RBI on Wednesday asked banks and NBFCs to immediately put in place a board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the six-month moratorium, in conformity with the Supreme Court judgement last month.

As part of the Covid-19 regulatory package, the RBI had allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31 of last year. The moratorium was extended by three months till August 31.

Referring to the judgement of Supreme Court dated March 23, 2021, the RBI in a circular on Wednesday said: “All lending institutions shall immediately put in place a Board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the moratorium period, i.e. March 1, 2020 to August 31, 2020…”

The apex court had directed that no compound or penal interest will be charged for the six-month moratorium announced last year amid the Covid-19 pandemic and the amount already recovered is to be refunded or adjusted in the next instalment of the loan account.

The RBI further said in order to ensure that the judgement is implemented uniformly in letter and spirit, methodology for calculation of the amount to be refunded/adjusted for different facilities should be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which “shall be adopted by all lending institutions”.

The “reliefs shall be applicable to all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed” said the circular on ‘Asset Classification and Income Recognition following the expiry of Covid-19 regulatory package’.

The central bank also said lending institutions should disclose the aggregate amount to be refunded/ adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.



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Marginal impact of SC verdict on moratorium on earnings

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With banks gearing up to close the financial year and announce results for the fourth quarter and full fiscal 2020-21 in the coming weeks, analysts and experts believe that the Supreme Court verdict on loan moratorium will have marginal impact in terms of their earnings. It is expected that most lenders are likely to move into expansion mode now thanks to signs of economic recovery and improved credit demand.

“Our analysis indicates the earnings impact of the residual exposure is not very material,” said Edelweiss Research in a recent report.

Also read: Loan moratorium: SC orders full waiver of interest on interest

It has worked out three scenarios of such loans being 15 per cent, 20 per cent and 25 per cent of the moratorium books of its coverage banks. “The impact of a hit from loss of interest on interest for this moratorium period will, at most, result in a few basis points dent to the annual net interest margin, even if incremental costs are entirely borne by the banks and with no further government contribution,” it said.

Private sector lenders are set to announce their fourth quarter results in the coming weeks in April followed by public sector banks. HDFC Bank is scheduled to announce its results for the quarter ended March 31, 2021 and the fiscal year 2020-21 on April 17 while ICICI Bank will announce it on April 24.

A report by Axis Securities said it is not yet clear whether this incremental hit will be absorbed by the government or passed on to the banks.

“Even so, it will be a one-time hit and not have a material impact as it only pertains to interest on interest for five months period only. We expect that with NPA standstill withdrawn, banks will report actual NPAs in the fourth quarter of 2020-21 instead of reporting proforma NPAs, which could lead to some margin compression,” it said, adding that with better clarity on asset quality, banks with excess provisions such as ICICI Bank could result in some provision write-backs.

“On overall basis, we remain positive on banks due to improving macro-economic recovery feeding into better credit growth and limited asset quality disruption,” said Emkay Financial Services in a recent note.

Improved credit demand

Bankers have also been talking about increased credit demand in recent months.

CARE Ratings noted bank credit growth has stood largely stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic (the bank credit growth ranged between 6.1 per cent to 7 per cent during March and February 2020).

“The credit growth stood at an almost similar level during the last two fortnights at 6.6 per cent and 6.5 per cent, marginally higher compared with last year’s level of around 6.1 per cent, as economic activities gather pace,” it said.

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No compound interest on loan, irrespective of amount, during moratorium, rules SC

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The Supreme Court on Tuesday stopped banks from charging compound interest (interest on interest) or penal interest on any loan, irrespective of the amount, during the moratorium period.

A three-judge Bench of Justices Ashok Bhushan, Subhash Reddy and M R Shah said the amounts taken as compound interest or penal interest should be adjusted in future loan payments.

However, the court agreed with the Rserve Bank of India (RBI) that extending the date of the loan moratorium was “not viable”.

The court said judicial review over fiscal policies was limited. The court cannot order specific financial reliefs.

The court questioned the rationale of limiting compound interest waiver to loan up to just ₹ 2 crore.

The government had introduced a pay-back scheme on October 23 last year. The scheme payments waived the difference in the compound interest and simple interest charged between March 1 and August 31 (moratorium period) for eight categories of loans worth up to ₹ two crore.

The eight categories were MSME, education, housing, consumer durables, credit card, auto, personal and consumption loans. The lending institutions included banking companies, public sector banks, cooperative banks, regional rural banks, all India financial institutions, non-banking financial companies, housing finance companies registered with RBI and national housing banks.

In November last year, the court had directed the Centre to implement the pay-back scheme.

However, borrowers had continued to press for an extension of the moratorium and also argued that the entire interest for the moratorium period should be scrapped. The petitioners also said the ₹ 2 -crore pay-back scheme did not bring any relief to big borrowers reeling under the impact of the pandemic.

While reserving the case for judgment on December 17 last year, the Indian Banks Association had said the pleas made by the petitioners extended beyond the financial stress they supposedly suffered during the pandemic.

The Centre had said a complete waiver of interest would cripple the economy and banking sector.

The State Bank of India had pleaded in support of the small depositors who form the “backbone” of the banking system.

“Small depositors are faceless in these proceedings. It is not a case of borrowers versus bank. They are the backbone of the financial system. Banks have to give interest to these depositors. How can we leave them?

For every loan account there are about 8.5 deposit accounts in the Indian banking system,” senior advocate Mukul Rohatgi had asked in court on the last date of hearing.

The RBI had referred to clause 3 of its August 6 circular for ‘Resolution Framework for COVID-19-related Stress’ to point out that lending institutions, guided by their respective Board-approved policy, would prepare viable resolution plans for eligible borrowers. However, the benefits would only be provided for borrowers stressed on account of COVID-19.

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Seven private banks see big rise in stressed retail loans during pandemic; PSBs escape, BFSI News, ET BFSI

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Seven private banks, including the top ones, saw an increase in their ratio of stressed retail loans rise during March and December 2020 as borrowers battled the pandemic-led slowdown.

The highest rise was of Karur Vysya Bank, which saw its stressed retail assets rato rise 280 bps to 5% in the March-December 2020 period while DCB Bank’s stressed assets grew 180 bps to 3.7% from 1.9%.

The retail stressed asset ratio at HDFC Bank rose 70 bps to 1.4% from 0.7%, IDBI Bank 120 bps to 2.5% from 1.3%, IndusInd Bank 170 bps to 4.2% from 2.5%, IDFC First Bank 50 bps to 2.3% from 1.8%, and at Kotak Mahindra Bank 60 bps to 2.6% from 2%. The stressed advances include gross non-performing assets and restructured standard advances.

On the other hand, most public sector banks saw their stressed retail advances ratio either falling or remaining flat during the period under review.

Among the public sector banks, only Punjab & Sind Bank saw the ratio shoot up 380 bps, higher than the private banks, and Bank of Baroda saw it rising 50 bps.

Private banks typically lend to salaried class and self-employed people, who have been hit hardest during the pandemic.

Unsecured loans

The Reserve Bank of India‘s moratorium on repayment of loans has delayed the stress in the segment where delinquencies have not yet stabilised and higher loan losses are expected to materialise in FY22, India Ratings has said.

“The performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrower’s depleted financial cushions and the nature of these loans,” according to a report by India Ratings and Research.

Moratorium aid

The Reserve Bank of India’s moratorium on repayment of loans has delayed the stress in these segments where delinquencies have not yet stabilised and higher loan losses are expected to materialise in FY22, it said.

The report also said the severity of the impact of the pandemic on their income as well as the impact of the moratorium and fiscal measures on their credit behaviour is varied.

“Thus, the effectiveness and inclusiveness of government support schemes to improve the financial position of the end-borrowers is crucial and is a key monitorable,” it said.



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‘In Q4, we are looking at growing the business, but methodically’

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The micro-finance sector is showing signs of improvement barring some lagging areas and customer sets. However, there is demand for credit, said Nitin Chugh, Managing Director and CEO, Ujjivan Small Finance Bank. In an interview with BusinessLine, he also spoke on the new products the bank is working on and discussed the third quarter results. Excerpts:

How is the micro-finance sector doing now?

In general things have improved, which is coming up in the collection efficiency of 94 per cent to 95 per cent. We had reported in our second quarter results that we have problems in Maharashtra, Punjab, and West Bengal, and haven’t come back to the pre-Covid level. In Assam, while things were improving, we have had a setback in January due to the loan waiver announcement by political parties, and (that) has resulted in 9 per cent drop in collection efficiency (during the month).

Even in customer segments, there is some divergence. Customers with general stores, and dairy were able to come back rather quickly. Those in small-scale manufacturing are taking longer to come back. Customers like housemaids, drivers, restaurant staff and mall workers were impacted for a much longer time.

Also read: Ujjivan SFB reports net loss of ₹279 cr in Q3

How has the restructuring process been?

You can’t expect or even plan for such things. The moratorium got over on August 31, 2020. September was the first month when customers started making payments. We had a collection efficiency of 83 per cent for payments, which improved to 88 per cent in October. But there are customers who are finding it difficult to pay after the moratorium got over. The whole estimation process started from October; we started talking to customers and did a full detailed survey. We spent December holding individual conversations and completing the whole process.

How is credit demand? You have reported strong disbursement in the third quarter.

Credit demand has started to come back as people started going back to their livelihoods.

Disbursement is even stronger in January. Demand is from all across. We did our highest ever in January in the affordable housing business. In MSME also, we did our ever highest in January. In micro-banking, we are back to pre-Covid level and exactly what we were in January 2020. In fact, in December 2020, we did even better than December 2019 in micro-finance. Likewise in vehicle finance. In the fourth quarter, we are looking at growing the business now but doing it methodically with the appetite for risk that we have.

You are working on gold loans…?

We are still learning the business. We are in pilot stage right now. We started in October with five branches, all of them in Bangalore. The first two months were not very remarkable as we were trying to do this more through word of mouth. We will launch it at scale in the next fiscal year. It is an unmet demand of our customers.

Also read: Assam MFI Bill may hit collections in short term

Any other new areas of lending?

In vehicle finance, we are testing MMCV (micro and mini commercial vehicle) loans. We are likely to make an entry into that segment. We were also evaluating the used car segments but with the Budget announcements on voluntary scrapping policy, we need to do some rethink on that. The segment of customers we deal with, they usually buy five- to seven-year-old vehicles and they buy them for a long period of time.

We are also looking to introduce credit cards in the next financial year. We have a substantially large base of retail, non-micro-finance customers. We have a large base with close to a million customers and the demand for these products is coming from them. We will also look at any other relevant product. Also, maybe lockers in a few of our branches.

Are you worried about stress on your books?

Now, we are not. We have taken all provisions upfront in the third quarter. Stress is emerging right now, the NPAs are at a standstill. We already had a cover on our books of 4.1 per cent to 4.2 per cent in the last quarter. It wasn’t that we were not adequately covered, we had taken provisions in the last three quarters also. We took the decision to upfront everything. Let us not live with any uncertainty and not worry about future credit loss, so that we can focus on growth.

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Covid-19: Over 40% of borrowers availed loan moratorium benefit

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Customers accounting for 40.43 per cent of outstanding loans in the financial system availed the benefit of moratorium allowed by the Reserve Bank of India (RBI) for borrowers affected by the COVID-19 pandemic as on August 31, 2020.

As per “Report on Trend and Progress of Banking in India 2019-20,” most sectors reported lower outstanding loans under moratorium in August 2020 compared to April 2020.

However, Micro, Small and Medium Enterprises (MSMEs) registered a marginal increase. The number of MSMEs customers availing moratorium increased to 78 per cent in August 2020, reflecting sector’s stress.

UCBs shoulder the brunt of stress

The distribution of moratorium sought in MSME loans indicates that urban co-operative banks (UCBs) bore the brunt of incipient stress (with 89.60 per cent of the total outstanding within the segment opting for the moratorium), followed by PSBs (public sector banks at 75.42 per cent) and NBFCs (non-banking finance companies at 67.01 per cent), the report said.

In the case of moratorium availed for individual loans outstanding, the share of SFBs is the highest (at 69.39 per cent of the total due within the segment opting for the moratorium), followed by UCBs (57.64 per cent) and NBFCs (56.51 per cent).

Deferment of payments

The report assessed that nearly two-thirds of the total customers of PSBs and half of the total customers of private sector banks (PVBs) exercised the option to defer payments in April 2020.

RBI observed that as on August 31, 2020 this reversed, with PVBs accounting for a larger customer base under moratorium than other categories of lenders, mainly due to a four-fold increase in their MSME customers availing the benefit, and with a sizeable customer base across categories (majorly individuals) opting out of moratorium in case of PSBs.

According to the central bank, the commercial banking sector’s financial performance was shored up in H1:2020-21 by the moratorium and the standstill in asset classification.

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