Nearly 60% Of NBFC Customers Have Opted For The Loan Moratorium

While the Reserve Bank of India initially announced a three-month loan moratorium in late March, allowing borrowers to defer their principal and interest payments until the end of May, last month it extended the moratorium by another three months.

“On average around 60% of NBFC customers have received the moratorium from the top NBFCs,” said Raman Agarwal, co-chairman, Finance Industry Development Council, an industry body. “The figure should stay the same for the second phase, given that economic activity on the ground is yet to pick-up and normalise across the country.”

Varying Experience

Unlike in the case of private banks, most of whom have seen between 30-40% of their loan book go under moratorium, NBFCs have seen a wide variation.

Based on disclosures by five large non-banks, over 40% of their respective assets under management were under moratorium as of the end of May 2020. These include Housing Finance and Development Corporation Ltd., Bajaj Finance Ltd. and Aditya Birla Finance, among others.

Disclosures across non-bank lenders were also not standardised. While some provided data on loans under moratorium, others provided the share of customers who have sought a moratorium.

According to disclosures by five other non-banks, around 54% of their customer base has availed the moratorium. These include Mahindra Finance, L&T Finance Holdings Ltd. and PNB Housing Finance Ltd., among others.

Around 35-38% of the Edelweiss Groups’ borrowers have availed of moratorium, its chairman Rashesh Shah said in an interview with BloombergQuint.

PNB Housing Finance said that while 56% of its borrowers opted for the moratorium during the first-phase, only 31% opted for it during the second phase.

Segment Risks

One reason for the varying performance is that NBFC portfolios are often concentrated in individual lending segments.

Based on the disclosures made by NBFCs so far, a larger portion of customers on the wholesale side, real-estate developers, micro-loans and auto-loans have availed the moratorium more than retail borrowers.

For instance, 70% of Bajaj Finance’s auto-loan portfolio is under the moratorium, while 30% of its small-business loan portfolio, 25% of its business loan portfolio and 29% of its consumer lending portfolio is under moratorium, the lender said last month.

Similarly, for L&T Finance Holdings, around 16% of its home-loan borrowers received the moratorium compared to 28% of its real-estate borrowers, 29% of two-wheeler loan customers, 31% of farm-loan borrowers and 100% of micro-loan borrowers.

Around 80% of Indiabulls Housing Finance Ltd.’s construction finance borrowers received the moratorium compared to 33% of its mortgage customers, Chief Executive Gagan Banga said.

For Piramal Capital and Housing Finance around 85-90% of its wholesale book and 25% of its retail loan portfolio is under moratorium, Ajay Piramal, chairman of Piramal Enterprises Ltd., told BloombergQuint in an interview last month.

“There may be massive differences between the moratorium rates between lenders which reveals the extent to which they have a concentrated portfolio in terms of specific customer segments or asset classes,” said Nitin Jain, partner, financial services, PwC India. Jain said it’s still unclear how the situation will evolve in the months ahead.

We may see more customers opting for the moratorium in the coming months if it takes longer for the economy to revive or if lockdown restrictions continue, he said.

“The moratorium rate figures are very volatile and they are changing every month across lenders, as borrowers are either opting in or borrowers are repaying their dues before the moratorium ends,” said Jinay Gala, senior analyst, India Ratings and Research. Overall, we could see higher stress emerging in urban micro-finance compared to rural, while lenders in the unsecured lending segments will face the risk of rising bad loans, especially micro-finance lenders, he said.

A Double Whammy

According to Gala of India Ratings, there could varied risks for a lender depending on how each loan book segment behaves over the next six to nine months.

“There are two parts to the moratorium. On the one hand, the extension of the moratorium gives borrowers more time to save money, build cash-flows and streamline their business. But it could also lead to higher defaults if the borrowers’ business does not revive,” he said. “They may be better off defaulting on the loans if the financial obligations becomes large once the moratorium period ends.”

While larger NBFCs continue to tap capital markets and banks for additional debt and liquidity, smaller NBFCs haven’t been able to raise money during the last two months, he said.

“This will lead to a double whammy,” Jain of PwC India said. “On the one hand, you cannot raise money, which means you can’t disburse fresh loans, so the lenders’ non-performing assets will go up once the moratorium period ends, because the loan book has not grown.”

Karthik Srinivasan, group head of financial sector ratings, ICRA Ratings also said that eventual asset quality impact of the Covid-19 crisis on NBFC balancesheets remains tough to judge.

“There could be a 50% rise in stage-3 assets. But we would need to understand the collection numbers in June and the moratorium rates for the first quarter and if NBFCs are getting the moratorium from banks, to understand the full impact,” he said. If you go by historical data, loans to self-employed and unsecured borrowers have seen more stress during such periods, he added.