Loan moratorium and NPAs

Subject: Economy

Context:

RBI permitted banks and NBFCs to allow a further 3-month moratorium, i.e from June 1 to August 31, 2020, on the payment of installments in respect of term loans outstanding as on March 31, 2020.

Concept:

According to data provided by different banks, nearly 30 per cent of their outstanding loans have come under moratorium so far, with micro-finance borrowers facing extreme stress, followed by automobile finance, MSMEs, corporate and retail loans. For some banks, this percentage is almost 70 per cent.

Impact of moratorium on banks

• Banks are likely to take a hit down the line since this is expected to significantly add to their non-performing assets (NPAs) from the second half of 2020-21.
• Banks are unlikely to face problems for the next three months as regulatory relaxations, will provide them a breather till September in recognizing NPAs.
• Post September, NPAs are expected to shoot up from the current level of around Rs 10 lakh crore, when these loans come up for repayments.