India’s private sector banks have seen both retail and wholesale customers asking them for moratorium on loan repayments. Now that the moratorium period is further extended to 31 August, lenders expect more borrowers to come forward and demand it. “We believe this increases moral hazard risks as well as elongates the asset quality cycle for lenders," analysts at Nomura Financial Advisory and Securities (India) Pvt Ltd said in a note to clients.
As banks brace for the second wave of moratorium, here are some clues from what data from the first round of moratorium tells us.
Moratorium details are available for a handful of banks and non-bank lenders that have detailed their FY20 results so far.
What stands out is that moratorium instances are high for small loans, especially retail. For instance, 70% of Bandhan Bank Ltd's loan book is under moratorium. The bank is predominantly a micro lender and has a negligible corporate book. Likewise, small finance banks such as Ujjivan Small Finance Bank Ltd and Equitas Small Finance Bank Ltd too have reported that about 90% of their loan book is under moratorium.
The proportion falls for Axis Bank Ltd, ICICI Bank Ltd and even IndusInd Bank Ltd, which have nearly half of their loan book as corporate loans. Indeed, the moratorium demands initially have been from smaller borrowers, be it either retail or small businesses.
That does not mean that big companies have not opted for a repayment holiday. Rating agency Icra, in a report last month, had said over 300 companies opted for moratorium. What stood out was that some of them had the backing of big conglomerates such as Tata Group, JSW Group and the GMR Group.
While moratorium on a loan book value basis is not large enough, what should be more interesting is how many borrowers have availed it. Here so far only two banks have detailed the moratorium picture. Most lenders have only disclosed value-based moratorium. Axis Bank has said 10-12% of its borrowers opted for the repayment holiday, while for Yes Bank this was higher 15-25%.
How have non-bank lenders fared?
The biggest consumer lender Bajaj Finance Ltd said 27% of its book is under moratorium. Analysts at Nomura estimate that potential moratorium would be 10% more given the trend in cheque bounces and partial payments. For Mahindra and Mahindra Financial Services Ltd, the proportion of loan book under moratorium was 79% with a potential 10% more expected to move.
In general, analysts expect that with the extension of moratorium period, non-bank lenders would find a larger portion of their loan book moving under it. This adds to liquidity pressures and risks being faced by some non-banking financial companies (NBFCs).
While moratorium gives much needed relief during the lockdown period, it muddles the asset quality picture for banks. “From recognition perspective, we see the asset quality cycle getting prolonged and can’t rule out a restructuring cycle once the moratorium period ends as well. This will likely lead to downside risks to our FY22F estimates arising out of increased asset quality risks as well as elongated asset quality cycle," wrote analysts at Nomura in a note.
The bad loan cycle that was expected to reach its bottom in FY21 is now stretched. What’s more is that the present pressure on asset quality is expected to increase delinquency rates again.