Extension of moratorium may lead to credit indiscipline, say bankers

The extension of moratorium by three months beyond May is likely to expose lenders to the risk of some borrowers having the capability to pay skipping repayments, fear bankers. The move is also expected to nudge lenders to extend this leeway to borrowers like some finance companies who were not beneficiaries earlier.

A senior State Bank of India executive said the moratorium is apt for small and medium enterprises whose cash flows have been impacted severely. But that is not the case with retail borrowers (mostly salaried). Few have lost jobs, but the number is less. This segment may pose a challenge to resuming normal payments. Consequently, banks may end up with higher delinquencies during hard days, the executive said. 

 

A top executive of public sector bank said some able borrowers might miss payments and request for more relaxations. The accumulated interest during the moratorium period would add to burden of repayments. “Lenders are alive to such tendency which may add to pool of bad loans,” he added.

Krishnan Sitaraman, senior director at CRISIL Ratings, said the lender will have to monitor borrower’s behaviour pertaining to payment discipline once the moratorium is lifted. A six-month of continuous non-payment of debt obligations can result in some element of credit indiscipline creeping in for certain borrowers.