Gradual phase-out of moratorium mitigates asset quality cliff for Indian banks: Moody’s – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/gradual-phase-out-of-moratorium-mitigates-asset-quality-cliff-for-indian-banks-moodys/articleshow/79660186.cmsSynopsis

“The gradual tapering of support measures will give borrowers time to adjust and enable banks to build loan-loss buffers, in turn reducing the risk of a sharp decline in banks’ asset quality,” said Rebaca Tan, Moody’s Assistant Vice President.

MUMBAI: The gradual tapering of coronavirus relief measures will help prevent a spike in nonperforming loans for Indian banks, as the country faces an uneven recovery ahead, Moody’s Investor Service said on Thursday.

“The gradual tapering of support measures will give borrowers time to adjust and enable banks to build loan-loss buffers, in turn reducing the risk of a sharp decline in banks’ asset quality,” said Rebaca Tan, Moody’s Assistant Vice President.

“Still, risks remain amid a likely uneven recovery in 2021 that remains vulnerable to setbacks, including any new wave of coronavirus infections,” Tan added.

The most common among programs introduced at the outset of the pandemic to support borrowers were loan moratorium, which will soon be phased out in most countries.

In place of loan moratoria, regulators are encouraging banks to restructure loans by allowing lenders to classify these loans as performing.

This approach will buy many banks important time to manage the deterioration in asset quality that is likely to follow the economic downturn, which will drive up unemployment and depress corporate earnings, Moody’s said.

While the Reserve Bank of India allowed banks to provide loan moratoriums from March till end of August, the Supreme Court asked banks not to declare any borrower as NPA before it decides on a case related to waiver of interest during the moratorium period.

This has led to opaque bank balance sheets with estimates that NPAs could rise to as much as 12% at the end of the current fiscal year from the 8% levels seen in March 2020.(Catch all the Business NewsBreaking News Events and Latest News Updates on The Economic Times.)

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