HDFC chairman Deepak Parekh urges RBI not to extend loan moratorium beyond August, here’s why

HDFC chairman Deepak Parekh on Monday urged Reserve Bank of India (RBI) governor Shaktikanta Das to not extend the moratorium on loan repayments beyond August 2020, saying even borrowers who were able to service their loans were deferring payments.

“Please do not extend the moratorium because we see that even people who have the ability to pay – whether it is individuals or corporates – are taking advantage under this moratorium and deferring payment…There is some talk that there will be another extension of three months. It’s going to hurt us, and hurt the smaller NBFCs particularly,” Parekh said in his remarks to the RBI governor at industry-body CII’s council meeting.

Both Parekh and CII president Uday Kotak, however, urged the central bank to allow banks a one-time restructuring of stressed assets.“There is a growing view across the membership of a need for one-time restructuring,” Kotak said. Industry has been asking that the moratorium be extended by three months. Bharti Enterprises’ VC and CII’s past president Rakesh Bharti Mittal said at the conference: “Given the stress in the economy and the huge pressure, I believe there will be more companies joining the NPA list, and the moratorium extension should be seriously looked at and considered.”

Governor Das said he had ‘noted’ the suggestions made by industry captains, adding, “I will not be able to comment on any one of them now.” Data released by the RBI in its financial stability report showed that more than half the retail loans were under moratorium as of April 30. This is somewhat higher than the numbers provided by banks of between 25-35%.

Post the results for the June quarter, some banks have said the quantum of loans under moratorium has fallen in the second phase. For instance, ICICI Bank on Saturday declared that only 17.5% loans were under moratorium, compared to 30% in April. Similarly, Axis Bank said that 9.7% of its loans were under moratorium in the second phase, compared to 25% in April.

The RBI on March 27 had first announced a three-month moratorium on loan repayments for term loans starting March 1 and later extended it by another three months, up to August 31. Banks appear to have been far more circumspect in the second phase while allowing customers to defer repayments. However, analysts expects asset quality to deteriorate going by the high percentage of customers that opted for a repayments holiday in the first phase. According to FSR, public sector banks provided moratorium to 66.6% of their customers and private banks to 49.2% of their customers.

At the meeting, Parekh also suggested the regulator consider buying corporate bond paper like other central banks were doing. The RBI governor, however, observed the law did not permit regulator to do that, but did not rule out the possibility.