India Has The Highest Share Of Loans Under Moratorium: Goldman Sachs

A customer holds a bundle of Indian rupee banknotes of various denominations at the Margoa wholesale fish market in Margo, Goa, India. (Photographer: Dhiraj Singh/Bloomberg)

India has the highest share of loans under moratorium, according to Goldman Sachs. That, it said, is because conditions applicable for granting repayment relief are less stringent here than in other countries.

Goldman Sachs estimates that about 35% of loans across the Indian banking system are under a repayment moratorium, according to the research house's report dated June 3. The relief for first granted for a three-month period in March and has now been extended until the end of August. Bankers expect that the proportion of loans under moratorium may rise further, BloombergQuint reported on Thursday.

In comparison, other countries that have offered some form of repayment relief have seen a lower proportion of loans go under moratorium, In the U.S., an estimated 10% of loans are under moratorium, while in Australia it's close to 9%, Goldman Sachs said.

As of end April, banks have broadly between 25% and 75% of their loan portfolios under moratorium, compared with close to 1% for banks in China and 10% in the U.S., partly due to more stringent eligibility criteria in other regions.

Goldman Sachs

The research house sees an elevated risk of stress from the loans under moratorium.

“Given that these customers may have faced higher stress for repayments on a relative basis (compared to those not using moratoriums), we believe slippages could be elevated from this portfolio,” the report said.

Goldman Sachs estimates that new bad loans or slippages could rise by 300 basis points in the financial year ending March 2021 to 9% across banks, partly due to a risk to portfolios in areas in lockdown. “This implies on average 20% slippage on the overall moratorium book—5-6X bigger compared with peak slippage ratios witnessed across different cycles (based on our analysis across different companies).”

One reason for anticipated higher slippages is that a large proportion of loans, particularly retail, continues to fall in ‘red zones' where the spread of the novel coronavirus is maximum. In these areas, economic activity could take the longest to recover.

Based on credit bureau data as of September 2019, red zones cover 64% of the total retail loan book of the country. Across different retail lending segments, 44-74% of the loan book is exposed to the ‘red' districts.

Also Read: Banks Expect Loans Under Moratorium To Rise After Extension

“Though we acknowledge that the situation is rapidly evolving and while these numbers could change, we believe this reflects the potential size of the loan book which could be directly impacted if economic recovery is delayed,” Goldman said.