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    Moratoriums on loans is coming down. Macquarie tells you why

    Moratoriums on loans is coming down. Macquarie tells you why

    Moratoriums on loans is coming down. Macquarie tells you why
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    By Pranati Deva   IST (Published)

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    Global brokerage firm Macquarie in a recent report noted that the moratoriums for loans provided by banks have significantly declined over the past few months.

    Global brokerage firm Macquarie in a recent report noted that the moratoriums for loans provided by banks have significantly declined over the past few months.
    There has been a decline in the total loan book under moratorium from the 25–30 percent reported as of end-May. However, Macquarie added that bank management were cautious in extrapolating the decline yet, and customers have time until end-August to opt for moratoriums.
    The Reserve Bank of India (RBI) issued circular on March 27, allowing financial institutions to allow customers moratorium on loan installments that fall between March 1 and May 31. On May 22, the RBI extended the moratorium for another three months until August 31.
    The RBI circulars, however, provide for the accumulated interest for the period to be paid at the end of the six-month moratorium period.
    So, what explains the decline in loan book under moratorium?
    To begin with, when the moratorium circular came in, there was panic among customers, and many seemed to opt blindly without reading the finer print, said the brokerage firm.
    Even banks were not able to communicate properly about interest being charged during the moratorium. The brokerage noted that in a survey conducted by banks, almost 50 percent of the customers had opted for moratorium just to conserve cash amid the uncertainty about the coronavirus pandemic and the consequent nationwide lockdown.
    However, Macquarie noted that after clarity by the time of the second RBI circular banks could clearly communicate to customers about the additional liability they would incur.
    While some banks were initially gave three-month moratoriums on loans, now they are giving moratoriums for only one month after which customers have to extend every month, if needed.
    For HDFC, the retail loan book under moratorium has come down to 7 percent as of June 15 from 21 percent in May; and only a small portion of the 7 percent are new customers opting for the moratorium in the second round, the report said.
    Macquarie added that white-collar workers have not lost jobs as much as it was initially feared and it is another reason for the decline in moratorium. There would have been salary decreases or nil bonuses, but many of the workers feared job losses which didn't materialise.
    Most banks were worried that the moratoriums offered would have a negative impact on the slippages and subsequently drag the banks' earnings in FY22. According to a report by global brokerage Jefferies, 50 percent coverage on these slippages will lead to 7-18 percent impact on earnings in FY22.
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