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Shaktikanta Das

You can only kick the can down the road

Retail delinquencies will shoot up once moratorium ends and that cannot be remedied, said the banker. “You can only kick the can down the road,” he commented.

By B N Kumar

MUMBAI, Aug 2, 2020: With the end of the RBI declared moratorium on August 31, all eyes are on the central bank on its next steps.

Finance Minister Nirmala Sitharaman has already said that the government is in talks with the RBI on the issue of extending the moratorium or opt for one time debt restructuring.

Several sectors such as hospitality and real estate have been asking for onetime debt-structure, many bankers have opposed the extension of moratorium.

Indications are that the RBI Governor Shaktikanta Das will announce extension of moratorium for some and debt restructuring for others.

As a banker quipped: “It is going to be moratorium for now. Restructuring will also be needed…maybe post December or March next.”

Retail delinquencies will shoot up once moratorium ends and that cannot be remedied, said the banker. “You can only kick the can down the road,” he commented.

On the state of the economy, Nirmala Sitharaman said the other day the government is definitely trying to come out of difficulty but would be difficult to get a complete picture at this point of time due to uncertainty around the pandemic.

Meanwhile, India Ratings and Research (Ind-Ra) believes the impact of COVID-19 and the associated policy response is likely to result in an additional INR1.67 trillion of debt from the top 500 debt-heavy private sector borrowers turning delinquent between FY21-FY22. This is over and above the INR2.54 trillion anticipated prior to the onset of pandemic, taking the cumulative quantum to INR4.21 trillion. This constitutes 6.63% of the total debt (previous estimate: 4%). Given that 11.57% of the outstanding debt is already stressed, the proportion of stressed debt is likely to increase to 18.21% of the outstanding quantum. Ind-Ra expects the corresponding credit cost to be 3.57% of the total debt.

Ind-Ra has analysed in detail the degree of vulnerability of the top 500 debt-heavy private sector issuers, after assessing the mix between productive and non-productive assets (i.e. asset quality) held by each issuer along with their refinancing risks. The report buckets issuers in five categories of vulnerability – low, moderate, high, extreme and stressed. Based on these buckets, the agency has arrived at the estimates of debt at risk and expected credit costs.

Real estate consultant Anarock calculates that the total real estate loan equals almost USD 93 billion (approx. INR 6.63 lakh Crore) as on 2019-end (exchange rate taken is INR 71.23 for every USD 1). Of this, HFCs accounted for the largest share of total realty loans equalling 38%, followed by banks which comprised nearly 34% share while NBFCs have 28% (including loans given under trusteeships).

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