SBI’s Large Corporate Borrowers  Line Up For Loan Moratoriums
People wait in line outside a State Bank of India (SBI) branch in Delhi (Photographer: Anindito Mukherjee/Bloomberg)

SBI’s Large Corporate Borrowers Line Up For Loan Moratoriums

State Bank of India has seen a large number of requests, even from investment grade corporations, for a three-month moratorium of loan repayments as permitted by the Reserve Bank of India, according to two senior officials at the lender.

Unlike in the case of retail borrowers, India’s largest lender is reviewing these requests on a case-by-case basis.

Except for large AAA-rated industrial groups, a number of corporations in the AA-rated category have applied for a moratorium, said the first of the two bankers cited earlier, while speaking on condition of anonymity. While the banker couldn’t quantify the number or proportion of requests received, applications have come in from across sectors, he said.

Companies from the automobile, real estate, steel, power, aviation, telecom, among others, have sought relief, the banker said.

A number of these companies are seeing the moratorium as an opportunity to preserve liquidity even if they have the ability to service interest payments, this official said. Due to a sudden stop in cash flows, companies are using the repayment moratorium to save on the interest outgo to fund their daily operations, he added.

Unlike retail borrowers, where SBI has offered a moratorium to all customers unless they choose to opt out, for corporate borrowers, the bank is being more selective. The bank is yet to approve any of the applications and will do so in the next few weeks, the officials said.

SBI will allow its corporate borrowers to avail the moratorium if they have a good repayment history, the officials cited earlier said. For borrowers, which had weak finances even before the nationwide lockdown, the bank is advising loan restructuring, which could be a more stable solution, the second bank official—who also spoke on the condition on anonymity—said.

However, SBI is not entertaining moratorium requests from non-banking lenders and housing financiers. That’s because the Indian Banks Association has specified that the moratorium doesn’t apply to financial intermediaries.

While there have been a number of requests for a standstill on term loans, SBI is yet to see any large working capital borrowers seeking a moratorium, the bankers cited earlier said.

An email sent to SBI on Wednesday was not answered.

Also read: Non-Bank Lenders Approach Loan Moratoriums Cautiously

The rush to apply for a moratorium is not surprising, said Karthik Srinivasan, vice president, ICRA Ratings.

“It is likely that you will see moratorium requests even from well-rated companies because of the current uncertainty. We aren’t sure if the lockdown will get extended beyond the three-week period that the government has announced. It would be prudent for companies to utilise a window which does not penalise them too much and shore up liquidity,” Srinivasan said.

The moratorium will not immediately affect SBI’s interest income, since the bank can book the income and the collect it later, the two bankers said. However, if the macroeconomic impact of the 21-day nationwide lockdown continues to be severe, some borrowers could see their businesses being affected materially and this could lead to downgrades and defaults once the moratorium is over, the bankers cited earlier said.

Rating agency ICRA had cautioned about this.

Notwithstanding RBI interventions, ICRA expects entities with weak liquidity buffers, relative to their fixed overheads and non-deferrable debt service obligations, to report significant weakening of their credit profile over the next couple of quarters, the rating agency cautioned in a report earlier this week.

Also read: Why Loan Moratorium May Be A Problem For Mutual Funds

SBI is also setting up a monitoring mechanism for all its corporate borrowers who will end up receiving the moratorium. The banking regulator requires banks to collate borrower-wise and credit facility-wise information if a moratorium is granted.

As of Dec. 31, 2019, the bank’s total corporate loan portfolio stood at Rs 7.71 lakh crore. Of this, more than 60 percent loans are to companies rated A- and above. Outstanding retail loans stood at nearly Rs 7.2 lakh crore.

Rajnish Kumar, chairman of SBI, had previously told reporters that the moratorium would affect repayments worth Rs 50,000-60,000 crore. This includes interest payments and principal repayments. The bank typically reports interest income between Rs 60,000-70,000 crore each quarter. However, it is not expecting all of its borrowers to avail of the moratorium.

The RBI’s scheme, announced on March 27, offers a three-month moratorium to all term loan and working capital borrowers. The moratorium would not affect the borrower’s credit rating or asset classification, but their repayment schedule would get extended.

Also read: The Covid-19 Moratorium Solves Only Half Our Problems

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