Banks need to recapitalize as moratorium ends

Mumbai, Ta. Wednesday 22 July 2020

There are indications that the number of borrowers taking advantage of the moratorium has recently dropped significantly as discussions are underway to extend the moratorium on term loans. However, banks will also need to recapitalize, a report said.

Compared to the quarterly results ended March 31, the number of borrowers in the June quarterly results of banks and NBFCs has been declining.

However, this is an early sign as the results of several public sector banks are yet to be released. Bankers are wondering if more borrowers will take advantage of the moratorium in the coming days. The term of the existing moratorium is coming to an end on August 31 and only then will the true picture become clear, said a banker.

It is also learned that there is a difference of opinion among the banks regarding the extension of the moratorium. Banks are facing a large number of defaults due to the moratorium. The possibility of an increase in NPAs due to defaults is not ruled out. Meanwhile, according to a report by the State Bank of India, the need for recapitalization of state-owned banks will arise after the end of the moratorium.

The report states that the suspension of IBC's provisions for one year will affect the settlement of stress loans.

Raising capital as well as maintaining capital is equally important for banks as banks will begin to receive information on distressed loans as soon as the moratorium is completed.