After the Reserve Bank of India (RBI) authorized banks and non-banks to repay their borrowers for three months, lenders brainstormed on how to implement the policy. FE has been informed that some public sector banks can offer a comprehensive moratorium to all private borrowers for three months, while NBFCs and private banks can introduce a mechanism whereby a customer can ‘sign up’ for the moratorium.
IDBI Bank has notified its customers that their moratorium has been offered. No separate requests from customers are required to sign up. During this cut-off period, most financial institutions employ skeletal staff and an opt-in mechanism may be difficult to implement. However, borrowers who want to continue paying can do so. The loan period has been extended by IDBI Bank without specific conditions and interest rate changes.
Others intend to limit the moratorium on assimilated monthly installments (EMIs) to private borrowers whose cash flows have actually been affected by the salary cut-down lockdown. At the same time, an “opt-in” mechanism imposes the burden of using the borrower’s benefit, which may lead to higher interest rates.
Salaried employees most affected by the lockdown belong to the aviation and hospitality industry. Some large conglomerates such as the Aditya Birla group, the Vedanta group and the Essar group have previously insured their workers from job losses or cut wages after the shock of Covid-19. Hence, lenders expect that the lockdown will leave the finances of many of their borrowers unaffected.
The largest players in the home loan market – State Bank of India (SBI), Housing Development Finance Corporation (HDFC), ICICI Bank and LIC Housing Finance – have been known to meet for the past two days to establish a mechanism to extend moratorium. At the same time, these institutions have also contacted their circuit-level executives for input on how best to implement the scheme.
SBI is expected to schedule a general moratorium on retail accounts showing signs of stress in the quarter from January to March. Other institutions are in the process of fitting the nuts and bolts of the process by which they will approach their borrowers. ICICI Bank is investigating a mailing and texting process to enable its borrowers to apply for the moratorium. It is also expected to compile a list of frequently asked questions (FAQs) on the subject on its website.
In the meantime, the sector has already started to communicate with borrowers that it is better not to use the moratorium. On Sunday, credit card payment app Cred said in a note to its users: “CRED recommends that you continue to pay your total amount due (or as much as possible) within the due date to avoid interest charges @ 36 – 42% compound annual fee interest, if you can . ”
HFCs may also impose higher interest rates on borrowers who choose to defer EMI payments. “What should be said is that the deferment is for people with temporary liquidity problems and the deferral costs must be borne by borrowers who want the benefit of the deferment. It is by no means a waiver, “said an official with a major HFC.