Before the COVID-19 moratorium on repayment ends (next month), financial firms not only have to disclose a gambol in bad loans, but will also have to raise a considerable amount of capital.
Hence, it is being said that, they will have to pretend as if their borrowers have become miraculously stress free. Policy makers are keeping it really close to their chests. As they plan a rescue model for this vital industry.
Elara Securities India Pvt has stated that “even if they have not cleared the past dues." The customers paying just the June installment would get off the list of accounts under moratorium.
More broadly in May, with an average of 64% for auto lenders and 38 percent of the book for mortgage financiers was at a standstill, this sudden unfreezing has been hard to swallow for some analysts.
After Prime Minister Narendra Modi put a stop to most economic activity to contain the virus, the central bank in March had told lenders that they could stop collecting from borrowers. Till then, three months has been extended by the regulator in terms of the timeout.
As most of the customer’s accounts have become regular again after the ease of lockdown from the month of May, lenders are under pressure from the stock market to answer on how this can happen.
Out of a $40 billion state-guaranteed small-business credit program, $17 billion have been approved by the lenders. As per the media reports, some amount of the money has been given to the borrowers so as to make them pay the old loans.
According to Sanford C. Bernstein & Co. analyst Gautam Chhugani, they have also identified two other strategies - first would be to help unstable borrowers with new funds, while other would be to simply reject deferment requests and keep auto-debiting customer accounts. Hence, “the underlying health of the loan won't be known for a long time until 2021," he has highlighted.