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Loan waiver or postponement? Muddled messaging puts bankers in a fix


Mumbai/Bengaluru: Rongsen Imchen, a mid-level executive in a Mumbai advertising agency whose future is as precarious any other salaried worker was rejoicing last Friday hoping her loan instalments for three months are waived after the Reserve Bank of India gave a moratorium on all loans due to Covid 19 pandemic.

Thousands of individual borrowers like Imchen are sailing in the same boat on belief that they need not pay their dues to the bank at all without realizing what the regulator did was just postpone their liabilities for three months. That they not only have to pay for the period till May end, but have to pay interest as well.

“There is some misconception with some people that this is a waiver,” said Mrutanjay Mahapatra, chief executive at the state-run Syndicate Bank which has finalized the policy on moratorium. “Many people are thinking that they don’t need to pay. That is not the case. They get is a three month deferment. We are not doing any collections now. Let the borrowers turn up once things settle.”

RBI last Friday declared that banks can excuse payments between March 1 and May 31 as businesses are almost at a stand-still due to the national lockdown declared by the Government. The regulator gave a blanket exemption to all kinds of loans, but left it at the hands of individual banks to formulate a policy based on its broad rules.

While corporates are having a better understanding, it is the retail segment that is giving jitters to the system. Retail exposed lenders such as Bajaj Finance, HDFC Bank all fell more than 7 per cent. Retail loans including home, car and personal loans constitute nearly a quarter of total bank credit as of September 2019 at Rs 24.6 lakh crore, data from the RBI shows.

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Indian retail borrowers are used to getting waiver, especially in farm loans, as politicians compete with each other during times of elections to please the electorate.

“There were a few queries on whether this was waiver, and we have correctly conveyed to our 846 branches that it is a moratorium of three months and not a waiver,” said M S Mahabaleshwara, managing director at Karnataka Bank.

Banks and micro lenders who mostly lend to poor in unsecured loans piled up huge bad loans in the past. That also led to a culture of borrowers defaulting on hopes of waivers. It happened before the 2009 general elections and prior to many state assembly elections.

“It looked colorful when RBI announced it,” said Rongsen Imchen, a resident of Mumbai suburb. “But, things are hazy. I am waiting for my relationship manager to tell me the details.”

As each bank formulates specific policy within the RBI guidelines, some lenders believe that it may not be as bad as it was in the previous occasions as customers appear to be more matured. There’s a cost to not paying in the form of interest. For instance, a 20 year mortgage can get lengthened by 11 more months for not paying for a quarter.

“The dispensation is very clear and the narrative is straight,” said R Baskar Babu, chief executive at Suryoday Small Finance Bank. “Even the SMEs in smaller towns are looking at conserving cash using the moratorium rather than not paying at all.”

While some lenders like Syndicate have approved policy, others like State Bank of India are in the process of doing so.

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“We will be able to notify operational details very quickly. Our next board meeting is on April 1, when we will get a board approval and immediately issue guidelines,” said SBI Chairman Rajnish Kumar.

(With inputs from Saloni Shukla)





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