Moratorium case: SC directive to benefit small, mid-sized accounts

The immediate beneficiaries of Supreme Court's directive not to tag defaulting borrowers as non-performing assets (NPAs) until the case is disposed of will be accounts whose payments were overdue for 31-90 days. However, the banks would be obliged to make provisions for such stressed accounts due to market sentiment.
 

Bankers said special mention accounts (SMA)- overdue period between 31 to 60 days (SMA1) and overdue period between 61 to 90 days (SMA2) would have become NPAs in August and September 2020. Now they will be saved from NPA tagging at least till the Supreme Court, which is hearing the petition on moratorium on repayments, says. The next hearing on matter is slated for September 10, 2020.
 

Public sector bankers said this could be a transient situation and some clarity is expected from the Supreme Court ruling. In the meantime, the K V Kamath panel would also submit its recommendations for industry specific financial parameters.

Even if some accounts are not treated as NPAs, banks may make higher provisions to avoid building up of obligations at a later date, bankers said.
 

The major implications of policy steps are for small and medium size units as they have limited ability to withstand shocks and repay dues regularly.
 

According to rating agency CRISIL, the key beneficiaries of RBI’s measures will be small and mid-sized accounts, which are far less resilient in the current situation.
 

CRISIL’s analysis of the credit profile of banking sector exposures of over Rs 25 crore shows this. The study, covering  nearly 14,000 companies that constitute over 75 per cent of the overall corporate portfolio of banks, shows that the debt at risk in corporate loan accounts with exposure less than Rs 500 crore is Rs 2 trillion.
 

As a proportion of loans outstanding in this segment, it is about five times that for larger corporate loan accounts with exposure more than Rs 500 crore, CRISIL said.