2020-07-16 09:52:00

MUMBAI: India’s lenders are on tenterhooks as to what would happen after August when the moratorium period on loans ends. They don’t seem to be comforted that some borrowers who availed moratorium have begun to repay instalments.

Bandhan Bank increased its provisioning towards risks from covid-19 in the June quarter despite its collections improving dramatically to 76% by the end of June from 29% in April. While its operating profit grew 16.9% year-on-year, provisions showed an eightfold jump.

Federal Bank too set aside more for risks it anticipates will come from the pandemic. Provisions totalled 394.6 crore for June quarter, a threefold jump from the year ago period. This despite moratorium levels falling to 24% by the end of June from 35% a few months back.

Why is there a wave of wariness among lenders and the market?

One key reason is that despite the decline in moratorium levels more than a quarter of the loan book still remains under it. This portion is key to watch, analysts say. While the national lockdown has ended, localised restrictions have sprung up in different states of the country. These restrictions tend to disrupt supply chains more as coordination becomes an issue. Ergo, the uncertainty for businesses has only increased. This will affect businesses and by extension their repaying capacity.

For instance, Federal Bank has 24% of its loan book under moratorium. Of this 12% have not seen any payment of instalments. This has ahigh potential to slip if borrowers do not see an improvement in their conditions. With Bandhan Bank too, nearly a quarter of its book is still under moratorium where repayments have been sporadic.

Here is another example of pain. Last week, Karnataka Bank reported that 51% of its loan book is under moratorium. The lender specialises in lending to small businesses. Analysts believe that delinquencies will surge once the moratorium is lifted.

A drop in moratorium levels is at best a mild comfort and lenders seem to be aware of this. “We expect growth trends to remain modest due to the consumption slowdown, and banks to become more cautious in lending to COVID affected sectors and certain retail/SME segments,” wrote analysts at Motilal Oswal Financial Services in a note.

Investors seem to share this wariness of lenders as well. Shares of Federal Bank and Bandhan Bank have lost about 4% and 2% respectively in the last one week.

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