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RBI asks lenders to submit analysis on COVID-19 impact


MUMBAI: The Reserve Bank of India has asked lenders to submit an analysis of the likely impact of Covid-19 and the loan moratorium on their books in what could be a pre-cursor to allowing a one-time restructuring, two people familiar with the development said.

This would also involve building and reporting worst-case scenarios on asset quality and capital requirements, one person said. Lenders said there could be a one-time restructuring after the regulator studies the extent of potential damage.

The RBI has suggested that banks look at various scenarios, ranging from mild to worst, as the regulator and the government prepare to report to the Supreme Court on how a likely waiver of interest on loans under moratorium could impact the banking system.

“We received a communication from the regulator last week whereby we need to conduct stress tests on our books and inform them about the impact of the pandemic on various aspects like asset quality and provisions,” said a bank official. “We have already conducted stress tests on our books till the end of May, but the impact of the second moratorium will be known by end of June.”

Lenders have in the past stated that a one-time restructuring window by the RBI will be essential to tide over the asset quality surge, once the six-month repayment moratorium lifts at the end of August.

“For a more authentic assessment of the stress on our books, we have to wait another three months before we start arriving at any conclusions,” Rajnish Kumar, chairman of State Bank of India, had said recently. “We see the NPA meter starting in September.”

Several lenders have conducted stress tests on their books as they prepare to face a rise in bad loans. HDFC Bank expects an up to 50-basis points impact from potential stress in its small business loans and that 9% of its micro, small and medium enterprise portfolio could be vulnerable. IndusInd Bank sees maximum stress at 80 bps on its bad loans. SBI, ICICI Bank and Axis Bank have conducted similar tests but have not revealed the likely impact on their asset quality.

An analysis by Crisil Ratings shows non-performing loans could widen to as much as 11.5% of the total banking advances by the end of this financial year from 9% presently. Fitch Ratings assumes that worst-case asset quality build-up would lead to capital requirements as high as $50 billion over two years. This at a time when the government has not budgeted any fund infusion in state-run banks for this financial year.

In their past communication with lenders, both the government and the RBI have stressed on building up capital buffers to absorb potential shocks arising from the pandemic. The RBI has also been collating similar information from nonbanking and fintech lenders to gauge a possible worst-case outcome and decide its regulatory stance on that basis.

“The conversation from the regulator has so far been on what is the extent of books under moratorium, what sort of customers are seeking moratorium, what is the profile of customers who are paying,” said Madhusudan Ekambaram, CEO, KreditBee, an NBFC. “We have not yet been asked to submit loss defaults on our books to the regulator.”


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