A STUDY ON

“MORATORIUM AND ITS EFFECTS ON BANKING

SECTOR”

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 ABSTRACT
Moratoriums area period of temporary suspension of an activity or law till a decision to lift the
suspension is made, as in the case of the issues that led to the moratorium are resolved. Moratoriums
may be imposed by regulators, by a business, or by the government. A moratorium is often ordered
in response to situations of crisis. Moratoriums are not new to the Indian banking sector and have
been granted and imposed in multiple instances in the last 20 years. Since 1999 moratoriums have
been imposed on 9 banks for various reasons. Recently, a six-month moratorium was offered by the
Reserve Bank of India (RBI) between March 1, 2020, and August 31, 2020, on all loan equated
monthly instalments, to help lessen the troubles faced by the borrowers due to the COVID-19
pandemic. This paper aims to study the recently granted moratorium by the RBI to assess and predict
its impact on the banking sector. The study will also reflect on similar instances of moratoriums that
have been granted in the United States, Greece, and Thailand in the last 20 years. COVID-19 affects
our country badly. It affects majority of the Industries in our country. Especially Banks and Non-
Banking financial companies are being affected more. They are playing major role in our Indian
economy growth. Because most of the self-employed peoples are depending bank or financial
institution loan only for their business development. Due to corona virus more than ninety days their
business affected more. On that time Moratorium facility was given to the Banks and Non-Banking
financial companies’ customers by Reserve Bank of India. We will study its merits and demerits.

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 INDEX
S.NO CONTENTS PAGE NO.

CHAPTER-1  INTRODUCTION
 NEED OF THE STUDY
 OBJECTIVES OF THE STUDY
 SCOPE OF THE STUDY
 RESEARCH METHODOLOGY
 LIMITATIONS

CHAPTER-2 REVIEW OF LITERATURE

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 CHAPTER-1
INTRODUCTION

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 INTRODUCTION

Impact of the loan moratorium on private non-banking financial companies (NBFCs) and
housing finance companies (HFCs) can be substantial, with close to 50 per cent of the aggregate
assets under moratorium as of April-end, the RBI's Financial Stability Report said on Friday.
In March, the RBI had announced a moratorium on repayment of term loans till May 31. It was later
extended for another three months.
"The impact of the moratorium on private NBFCs/HFCs can be substantial, with proportion of assets
under the moratorium for NBFCs averaged between 39-65 per cent based on underlying assets with
approximately 50 per cent of the aggregate assets under moratorium as on end April 2020," the
Financial Stability Report (FSR) showed.
Based on the disclosures made by NBFCs/ HFCs, the assets under moratorium are dominated by
wholesale customers and real estate developers, although retail portfolios in the micro-loans and auto
loan segments have also been affected, it said.
The report also raised concerns over the declining share of market funding for NBFCs as it has the
potential to accentuate liquidity risk for these firms as well as the financial system.
"Smaller / mid-sized and AA or lower rated / unrated NBFCs have been shunned by both banks and
markets, accentuating the liquidity tensions faced by NBFCs which was also reflected in the
lacklustre response to the targeted long-term repo operations 2.0 (TLTRO 2.0)," it said.
Banks and market borrowings account for over 70 per cent of total outside liabilities of the NBFC
sector.
With the waning of market confidence, the share of long-term market debt (non-convertible
debentures) in total borrowings of the NBFC sector declined to 40.8 per cent at end-December 2019,
from 49.1 per cent at end-March 2017, the report said.
The consequent funding gap was met through bank borrowings, which rose from 23.1 per cent of
total borrowings to 28.9 per cent over this period. The report also said in the aftermath of the IL&FS
crisis, NBFCs have been facing differentiation in market access and financial conditions, with only
the higher-rated entities able to raise funds.NBFCs have also started maintaining liquidity cover of
two to three months, despite the higher costs, it said.

"In the context of COVID-19, however, risks to the sector and consequently, systemic risks can
intensify," the report said.
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It said access of NBFCs/HFCs to capital markets, both debt and equity, is of significant importance
to the sector.
NBFCs were the largest net borrowers of funds from the financial system, with gross payables of Rs
8.84 lakh crore and gross receivables of Rs 0.89 lakh crore as at end-March 2020.
They obtained more than half of the funds from banks, followed by AMC MFs and insurance
companies, it said.
The report said HFCs were the second largest borrowers of funds from the financial system, with
gross payables of around Rs 5.91 lakh crore and gross receivables of Rs 0.45 lakh crore as at end-
March 2020.
"Therefore, failure of any NBFC or HFC will act as a solvency shock to their lenders which can
spread by contagion," it added.
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practise the journalism to which we are committed. Moratorium which means the temporary
suspension of the financial activity.The temporary suspension of the financial activities until the time
heals and restores.this will be imposed by the government.This may not occurs always but it creates
the short term money crises in the business not only business it creates a shortage of money in every
sector. The current situation of COVID-19, the government of India has announced the national wide
lockdown on 24th March 2020. It has created vastly disturbance to the country not only the country
but overall worldwide, on 27-03-2020 RBI has permitted three months moratorium period to the
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repayment of the loans between 1-03-2020 to 31-05-2020, but still due to the extension of lockdown.
On 22 may RBI extended it from three months to six months between 1-03-2020 to 31-08-2020
moratorium period to the repayment of loans and EMIS. This has made relief to the individual, self-
employed, business persons who have opted for loans but banks are charging interest and fines if
loans are not paid monthly and it has also effected the credit score of individuals if not paid, but still,
after the reopening of the country the lenders are not able to pay the debts to the banks, recently on
1st of September the central government informed the supreme court that the moratorium may extend
up to 2 years.
We aware that Banks and Non-Banking financial companies are the back bone of our Indian
economy since they are key player as part of economy through employment generation, wealth
creation, bank credit for the rural and urban markets and financially supporting to the weaker section
of the society. Also, they are providing credit facilities to the new entrepreneurs by way of small
medium enterprise loan category. Majority from self-employed peoples and 40% peoples from
salaried class depends bank credit only for their business development and meeting their large
expenses like marriage, purchase of land etc. Post 45 days from lockdown now only financials
sectors are returning to normal. During the lockdown self-employed peoples were fully affected and
salaried peoples lost some percentage of salary. Now post opening of the branches, banks and
NBFCs are not providing loans to the customers since they have doubt on the customers‟ repayment
capacity. Moratorium availed customers are not being considered for further loan due to their
repaying capacity because they already availed moratorium facility only with the reason as they
don‟t have the money for the repayment or they need some money in hands.

Gross NPA is expected to be 25-30% of total bank lending due to loan moratorium till August 31st.
For H1FY21, total bank lending is Rs 43 trillion and 30% is Rs 14 trillion. Of this, about 12% of Rs
14 trillion or 3.6% of total bank lending will be NPA.

Banks are hoping that at only a small portion of these loans may turn non-performing come
September when borrowers will have to restart the payment of loan instalments.

A rise in economic activity amid the easing of Covid-19 lockdown, borrower profiles and sufficient
cash balances are persuading the state-run and private banks to be hopeful.

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The Reserve Bank of India had initially allowed for a three-month loan moratorium beginning March
allowing term loan borrowers to defer payment of principal and interest and later had extended to
August 31st.

Net NPA is expected to grow from 3.7% in 2020 after 6% in 2019 to 5-6% in 2021. This is because
RBI has asked banks to do provisions, buffers and raise capital and thus be resilient organisations.

Non-food bank credit growth at 6.7% in July 2020 was the same as in June 2020 but lower than the
growth of 11.4% in July 2019.Credit growth to agriculture and services generates 9% and 13%
GNPA annually. Credit growth to agriculture increased by 5.4% in July 2020 as compared with a
growth of 6.8 % in July 2019. Credit to the services sector continued to grow at a high rate of 10.1%
in July 2020 vis-a-vis 15.2% in growth in July 2019.

Within this sector, credit to computer software and tourism, hotels & restaurants bucked the
downtrend, registering higher growth in July 2020 versus growth in the corresponding month of the
previous year.

Credit growth to corporates form 37% of total bank assets and generates 73% of NPAs. Credit
growth to industry slowed to 0.8% in July 2020 as compared with 6.1% growth in July 2019.

Within the industry, credit growth to food processing, mining & quarrying, petroleum, coal products
& nuclear fuels, leather & leather products, wood industry, construction and paper & paper products
accelerated in July 2020 as compared with the growth in the corresponding month of the previous
year. Sectors hit hard by the pandemic are tourism, aviation, entertainment, hospitality, petroleum,
real estate and food.

Sectors performing well are pharmaceuticals, FMCG, eCommerce, utilities and IT sectors. Loans to
these sectors won’t turn bad.

However, credit growth to chemicals & chemical products, plastic & their products, infrastructure,
gems & jewellery, glass & glassware and beverage & tobacco declined.So we see that credit growth
to sectors hit by pandemic will generate high NPAs.Retail lending forms 22% of total bank lending
and generates 3.7% of NPAs. Car loans, home loans and personal loans have low delinquencies and
are good loans. Personal loans continued to perform well registering a growth of 11.2% in July 2020,

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as compared with 17% in growth in July 2019. So NPAs from this segment will be low and banks
will enjoy higher margins.

Within this sector, vehicle loans registered accelerated growth in July 2020 as compared with the
growth in the corresponding month of the previous year.

Interest rates are lower since some time but banks have not much lowered their lending rates because
of financial sustainability. So with the growth of loans in H1FY21 will translate into good earnings
for banks despite the pandemic. Once the moratorium is lifted and repayments start coming banks
will become profitable. Resilient and profitable banks are essential as banks are the pillars of India
growth story and bankers’ contribution to the Indian economy needs to be rewarded and not at all
overlooked by responsible citizens and the government of India.

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 NEED AND IMPORTANCE OF THE STUDY

Due to COVID 19 issue, banks and non-banking financial industry is affected more. So,
borrowers from banks and non-banking financial companies struggled more to repay the amount
on time. In this situation, Moratorium was announced by Reserve Bank of India in our country.
So, we need to know that, it is really helpful to the borrowers or not?

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 SCOPE OF THE STUDY
This study is towards an awareness of Moratorium given by banks and non-banking financial companies and
has been attempted to know the impact of this facility used by the customers. Scope of the study is more now.
Banking sector performance had improved in FY20. Several banks reported growth in earnings.
Gross NPA declined to 8.5% in 2020 from 9.3% in 2019. It is expected to increase to 12.5% in
H1FY21. For PSU banks the same is expected to increase to 15.7% in 2021 from 11.7%. Total bank
lending was Rs 86 trillion in 2019, up from Rs 77 trillion in 2018.RBI had announced loan
moratorium on banks to salvage borrowers due to Coronavirus.

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 OBJECTIVES OF STUDY

 The study aims to identify the merits and demerits of the Moratorium offered by banks
and NBFCs sector due to COVID-19 and how they are providing this facility to the
customers and how it is manageable by them without profit or less profit.
 To study the impact of the announcement of 3-month moratorium by Reserve Bank of
India on Indian public sector bank equity returns.

 To study the Reserve Bank of India has permitted a one-time restructuring of loans
across corporate loans, MSME loans, and personal loans, which would allow the banks
to take appropriate actions after understanding ground realities post moratorium, the
opening of the economy, and the impact of the pandemic.

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 METHODOLOGY

The descriptive research design is used for analyzing and studying the
process of Business Development. It is very simple & more specific than
explanatory study.
The descriptive study is a fact finding investigation with adequate interpretation.
The descriptive study aims at identifying the various characteristics of a problem
under study. It reveals potential relationships between variables and also setting
the stage for further investigation later. The results of such research are not
usually useful for decision making by them, but they can provide significant
insight into a given situation. Although the results of qualitative research can
give some indication as to the ‘why’, ’how’ and ‘when’ something occurs, it
cannot tell us ‘how often’ or ’how many’.

As the research conducted was observatory there was no questionnaire and hence
no sample size or data interpretation was to be done.
Data Sources:

Primary Data: -
It is a firsthand data which is collected by you only. The different way of
collecting primary data is personal interview, questionnaire, survey etc. As my
project is descriptive study there is no primary data collected as such.
Secondary Data:-
Secondary data is collected from already existing sources in various organization
broachers & records. Secondary data for the study were collected from the
magazines, websites & other previous studies.
To meet the objectives, the study used qualitative research. The descriptive study
was done through review of existing literature that helped in validation and
extraction of the important variables and factors. Data was collected from
secondary sources. Secondary sources were magazines, websites, books, office
executives, and company data

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 LIMITATIONS OF THE RESEARCH

 This study covers only banks and non-banking financial companies sector and we don‟t
cover all the industry because this is applicable only for the financial transactions like
all the type of term loans.
 Opting for moratorium will have tax implications. ...
 Deferring two EMIs could extend your loan by 6 to 10 months.
 The interest payable on the loan will be higher when compared to the current interest
amount.

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 CHAPTER-2

REVIEW OF LITERATURE

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 REVIEW OF LITERATURE

1.By: Sanjay Kumar singh, Published on 17-04-2020   

The pandemic situation has made a huge negative impact on the banking sector where the
NIFTY bank index has drastically fallen about 27.5% over three months and also created the
slowdown of the Indian economy growth estimated around 1.9% of decrease for 2020-2021. This
would create job losses and stress in the banking sector.
 
2.By:ETBFSI,Published on 22-05-2020,
The banking and financial institutions are facing high provisions due to COVID-19 and also the
lenders are also availing the three months moratorium facility to repayments of the loans and
EMIS,The bankings sectors are also missed there estimated profits and facing the unexpected
losses and ended up with the losses in the quarter.
PROVISIONS ON BANKS
 The HDFC bank has made provisions of 1550 crores.
 ICICI bank also made high provisions of 2725 crores.
 BANDHAN bank has made its 100% of books under provisions.
 AXIS bank made provisions of 3000 crores.
 KOTAK MAHINDRA bank made 650 crores of provisions
 INDUSLAND bank has made 260 crores of provisions.
3.By: Reetika Wadhwa and Nishtha Das,published on: 16-05-2020.
 The moratorium period has been published on 27-march-2020 it was for three months where all
can pay there loans,emis, after three months if they are unable to pay due to financial crises.
 this period is granted by RBI for three months.
 This moratorium facility is given to the all types of loans like vehicle, car, housing,
personal, credit card dues, etc
 This moratorium is applicable for all types of banks like public, private, rural, regional,
co-operative banks,etc.
 This facility is can be availed by the borrower if he has any financial crises during this
pandemic situation but he can't escape from the interest.

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below are the list of banks for the preference of moratorium.
 State bank of India (relief only if it is asked by the borrower.
 Idbi bank (automatic relief).
 canara bank (relief only if it is asked by the borrower).
 Idfc bank (automatic relief for agriculture and rural loans and rest , relief only if asked by
the borrower).
 central bank of India (automatic relief).
 UCO Bank (automatic relief).
 HDFC (relief only if it is asked by the borrower).
 KOTAK (relief only if it is asked by the borrower).

4.By: business-standard,on 22-07-2020.
The moratorium has made banks into the troubles.The state-owned banks should be recapitalised
or find another way of capital conversation already under insolvency before the moratorium
period ends or else the accounts will be stressed (says by SBI search report).
RBI governor Shaktikanta das said all public and public sector banks need to raise capital on the
anticipatory basis and this may reduce the risks and covered by the outcome of the pandemic,
banks have to increase there governance and should sharpen the risk management skills to out
come from this pandemic situation.
                                                                                                      
5.By:sanket dhanorkar,on09-06-2020.
The moratorium has announced by the RBI for three months by the government for all kind of
emis, loans etc.according to the survey almost 80% of the individuals have opted for the initial
relief, every individuals were panic they don't have clarity about there future ,many are effected
with pay cuts,job losses. so they are preferred to conserve cash with them and opted for initial
moratorium. The worst sectors which effected are tourism, shopping malls, transportation,
aviation these sectors were occured huge cut-offs and job losses. so all the individuals are
preferring to conserve cash with them because future is uncertain
 
6.By:kumar shankar roy,on:08-04-2020
how credit cards works?.

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All the institutions are permitted allowed for the moratorium for emis,credit cards also only
between March 1, 2020, and May 31, 2020.The credit card customers must careful while opting
the moratorium in credit card payments.If you have a due of 120000 dated on march 3,and you
opted for a moratorium until may 31 you should pay around 138000 as per CRED.so its
recommended to pay before due date to escape from high interests around 30%.

7.  By:Rishikesh Ramesh on:17-04-2020.

The nonbanking financial companies(nbfc)not availed in the moratorium.after the fall down of
the IL&FS and DHFL the nfbc's are facing very tough times to convince their investors and also
losing trust on nbfc's.The nbfc not eligible for the moratorium.this has made very tough
situations for the nbfc's .nfbc's are also a part of "banking institutions" but the government has
blown away nbfc's from availing moratorium.nfbc's are facing pressure from both ends they have
offered moratorium for there customers and not getting them selfs from there lenders banks.these
nbfc's have 2 lakh crore debt to others.this has made into the pressured situation to nbfc's.
8.By:IANS,on:04-06-2020.
the RBI has permitted the moratorium for three months, the RBI has opposed to waiving the
intrests on the loans, so if the total interest which is calculated is around 2,01,000 crore which is
equivalent to the Indias 1%national GDP without counting the NBFCs and all India financial
institutions. The banks are required to waive the above statements and should face heavy
consequences.

9.By:Dreamer lader capital,on:09-06-2020.

The moratorium is effecting in double whammy for the borrowers like increasing interest and
overdue amount,also microfinance institutions has become more unprotected,the microfinance
institutions are reliable on a credit basis so it can destroy the credit culture and also effect
microfinance banks like Bandhan banks or small finance banks.

10.By times of India .

the moratorium had made banks into heavy stress and some banks have also completed there 100%of
their provisions and now they need additional capital. There are a huge amount of outstanding loans

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which borrowers have to pay to the banks and they have opted for moratorium.
TOTAL OUTSTANDINGS.
Home loans:19,02,800cr.
loans against property:4,30,700cr.
Auto loans:4,17,500cr.
Personal loans:4,06,100.
credit card:99,800cr.

11. By: Ecomomictimes., on:09-06-2020.

The banks are in large crisis due to moratorium, experts say better to not opt the moratorium if the
borrowers are not facing the financial crises. Because banks charge the interest on the unpaid amount so
its better to not opt the moratorium if you are not facing a financial crisis.The longer the tenure of loan the
bigger impact on loans facing by the banks.
less than one year:7%.
1-3 years:17%.
3-5 years:19%.
5-10 years:22%.
more than 10 years:35%.
 12. By:dinesh unnikrishnan,on 01-09-2020.
India's grp(gross domestic product) has drastically collapsed to 24% throughout the pandemic
situation.this is a sharp shrinkage and creates a huge impact on the banking sector.The banking sectors
have seen a huge rise in bad loans,and this impact will be visible to the all banking sectors though out
second and third quarter also, because though the lockdown has ended and the world is reopening but it
has made huge losses on local businesses,daily labors,job losses. salary cuts.so the people are demanding
for the extension on the moratorium.

13. By:financial express,on:07-08-2020.
The EMI moratorium has been a double-edged sword for both borrowers and as well as banks because the
borrowers are unable to pay there debts.the banks are facing huge stress on their accounts due to
outstanding loans.it has impacted on both. while corporate and others are looking for an extension of the
moratorium but banks have raised their threats and it is not in favour of it, and expecting NPA'S to rise to
12.5%, and these is been highest among the two decades.if NPA's increase it may create an additional
burden to the banking sector.

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14. The economic times,on 16-04-2020.
The banks not only should bare the moratorium availed to there customers but also ensure the good
security to there employees,and also follow all safety measures like sanitizing, thermal check to the
customers.The SBI has reduced the interest rate on all staff loans by 1% and extra day salary for all front
line staff until the lockdown ends.If any employee tested positive the bank should bear all the expenses or
in event of death due to COVID-19 banks should give compensation on 20lacs to there family,this all
costs became an additional burden to the banks.

15.By:monish shah,on:01-05-2020.
The global pandemic of COVID-19 made impact to financial service sectors in both ways like business
continuity and as well as operational wise.so they should manage both operational as well as continue the
business operations,they should take the steps to get out of it and minimize the risk and fast recovery.the
financial institutions should plan there portfolio for every scenario,to better understand the impact and
create short term achievements within period and grow up slow and steady recovery. 

16.By:Ritu singh,on 26-05-2020.

The COVID 19 has made huge impact on job security,salary cut-offs,job losses.according to the survey
54% of business have no impact running as usual ,39%salary cut-offs have been planed,15% of layoffs
have been planned,3% company might shutdown.
The private sector bank IDFC first bank has announced salary cuts for current financial year,they have
made 30% cut off compensation which includes fixed income and allowances for 2020-21.
Kotak Mahindra bank also declared a 10% pay cuts for all staff earning above 25lakhs per annum. India
bulls housing finance announced that company has decided to take voluntary pay cuts of an average 355
for the current financial year.

17.By:sanjay doshi,on:08-07-2020.
The covid-19 virus outbreak encourages the adoption of digital payments,post covid the there has been
huge surge in digital payments to avoid contactless cash transaction.In India all banks have not digitalized
especially in rural villages because it requires huge capitals,to enhance the digital payments banks will
need to focus on developing in technology like artificial intelligence,machine learning, cloud,and now in
India the digital payments have rapidly increased so its necessary to adopt all banks in digital mode of
payments.It also helps customers to transact them selfs with outreaching banks and 24/7 as well and
avoids contact between two persons. soo now banks should additionally focus on technology in this

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pandemic situation.

18.By:Shayan Ghosh.
The Indian banks have started lower interest rates and easing credit score those who require loans to retail
customers to push the new loans.The four banks bank of Baroda,Bank of India,Union Bank,bank of
Maharashtra have introduced this type of loans for only existing customers, the maximum tenure of loans
is 36-60 months.bank of baroda will charge 10.25%interest in favour of COVID-19 before it was around
12.5%.if individual has good cibil score above 650 the interest is 7.2% only bank of India have set 675 of
cibil score to avail these loans. These plans are introduced by banks to increase the cash flow.
  
19.By:The economic times.
In awake of the coronavirus all Indian banking systems are seen there impact around 50% of there
operations and 80% of there cash flow cycle has been decreased.This COVID has introduced fresh
challenges to all over country economy.All countries are facing decrease in net income,decline in paying
loans.The country has already experiencing a slow and steady growth .in the third quarter of fiscal year
the economy has grew 4.7% which is lowest among the last six years.     

20.By dreamladdar capital.

The moratorium extension had made severely negative for low duration loans like microfinance,credit
card, auto loans,etc.This loan generally around 12-24 months.
The banks and NFBC loans under microfinance moratorium.
HDFC BANK:5-10%.
SBI:20%.
KOTAK BANK:26%.
AXIS BANK:25-28%.
BAJAJ FINANCE:27%.
ICICI BANK:30%.
RBL BANK:35%.
BHANDAN BANK:71%
L&T FINANCE:36%.

Moratorium means a temporary prohibition of a specific activity. Due to lockdown issue all the sectors
have been affected. All the government employees are receiving the salary but private sector employees
are getting the salary with some percentage of salary deduction. In many industries salaried peoples lost

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10% to 40% salaries deduction in their salary including IT sector and banking sector. Most of the un
organised sectors peoples have lost their job as well. Due to this issue our Reserve bank of India thought
that some relaxation is required to the borrowers in this current situation then they announced moratorium
facility for the borrowers. A moratorium is a temporary relaxation during the loan repayment period,
where they are not required to pay their equated monthly instalment as per their existing schedule. On 27
March 2020, our RBI governor Shri Shaktikanta Das announced and permitted all the banks and financial
sectors including commercial banks, housing finance and all the Non-banking financial companies to
provide the moratorium for 3 months on their respective equated monthly instalments. It is applicable
only for term loans outstanding as on 1st March 2020. Given the extension of the lockdown and
continuing disruptions due to COVID-19, it has been decided to continue the moratorium by another three
months. Announcement happened on 22nd May 2020 by Reserve Bank of India as second time. It means
borrowers can use this facility till August 2020.
People who are affected in their business and salary reduction or job loss availed this moratorium facility.
Around 32% of the borrowers have availed this moratorium in banking and financial industry. Even
though this is not a good for banking and financial industry since they are locked with fund flow but in
the customer point of views, this is good only.
As direction given by the banks and NBFCs, this moratorium transaction will not affect customers‟
repayment track and also it will not affect their CIBIL report since majority of the bankers and NBFCs is
considering CIBIL report as one of the main parameter and if they found and negative repayment history
in said report, applicants will not be considered for the further loan process.
Is moratorium really required for the borrowers?
First announced moratorium on 27th March 2020 is really welcome by all since everyone did not know
about the current situation and lockdown issue and it is useful for all the borrowers however around 32%
peoples only availed moratorium facility but once announced second moratorium most of the financial
experts were shocked because surely this will affect banks‟ fund flow even around 27% repeated
customers only availed second moratorium facility. In this connection really, this facility is not required
peoples also have utilized this because of enjoying this benefit. But they have forgot that only tenure will
be increased and they need not pay the EMI as per their pervious schedule but they need to pay the
interest on already availed principal and interest clubbed EMIs. This is not required to the peoples who
have sufficient money with them. Also, bankers and NBFCs are not considering further loans to these
facility availed customers and No one can ask the question with them because it is their right. How can
we expect that they can consider these borrowers because they have lost their confident on borrower‟s
repayment capacity? In bankers‟ point of view, this is right statement only.
Also, bankers tried to use this situation for their further business. For example, if we tell about credit card

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customers, they are not being considered as term loan customers but bankers were ready to convert their
transaction as term loan with equated monthly instalment facility because if anyone paid their credit card
spent amount on time, they need not pay the interest but in this situation if they availed this facility from
the bankers, they are responsible for paying the interest as well as processing fee. These fee and interest
parts are the benefit of the bankers. Most of the bankers called their credit card good repaying customers
volunteer one and asked them to convert their expenses amount as EMIs only for their income sourcing
point.
CoVID-19, better known as the novel coronavirus, hit the India. From the day 1 of lock down the Indian
economy facing dilemma in various fields. The virus doesn’t leave the capital markets and Banking
Industry. On 27th March, RBI reduced the repo rate by 75 bps and announced of three months on all term
loan and credit card instalments due between 1st March and 31st May 2020. The announcement gathered
a lot of interest as, initially, many believed that loan EMIs and credit card dues had been waived for three
months. The moratorium, if availed of, will give short-term relief but will also cost borrowers dearly. This
article focusses on Impact of moratorium, Interest and why government excludes NBFC from
moratorium? However, this article discussed about the problem faced by borrowers and lenders during
this pandemic situation.
As per the Oxford Dictionary Moratorium means a legal authorization for debtors to postpone the
payment. A moratorium can be imposed either by a Government or by a Business. It is more of a response
to a crisis that disrupts normal routine causing financial hardships. A soon as the issue is resolved, the
moratorium will be lifted.
Since the borrowers might face a lack of liquidity during the nationwide lockdown to suppress the spread
of COVID-19, the RBI on March 27 allowed financial institutions and banks to offer a three-month (90
days) moratorium on term loans and credit card bills to ease the situation and avoid a financial crisis.
However, this will have serious repercussions on the Indian Economy. The RBI has permitted banks and
other categories of lenders to framework this deferment which includes all kinds of loans including
personal loans and credit card dues. The Moratorium cannot be seen as a waiver and is only a reprieve, as
it is payable at a later date. (1)RBI has announced that all term loans including Agricultural, retail, crop
term loans and loans under pool purchases are entitled to avail the benefit of the moratorium package. It is
available accounts which are standard assets as on 1st March 2020. (2)
INCREASED INTEREST RATES
This moratorium can be seen as a stroke of luck for individuals whose income has taken a hit due to the
outbreak and impact of the lockdown. The CIBIL score of the individuals who have obtained loans will
remain unaffected as the non-payment of interest will not be seen as default during these three months.
Nevertheless, at the end of the moratorium the interest can be seen a bit high, particularly for personal

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loans and credit cards. Additional interest will have to be paid for deferring equated monthly instalment
(EMIs)to the respective lenders. And to pay this additional interest, there is an option either to increase
the loan tenure without increasing the EMI amount or increase the EMI amount without increasing the
loan tenure or if not both a one-time payment of the interest that accrues in March, April and May can be
made in the June.(3) This very much impacts home loans as these long-term loans and the EMI’s form a
substantial part of the monthly budget of an individual. The EMI for the moratorium period gets added to
the outstanding principal amount, as a result the repayment from June onwards will be on the higher
principal amount. Credit card loans will face a higher interest rate as they are unsecured loans and what
must also be kept in mind is that credit cards can be used during the moratorium period only if the dues
are cleared. (4)
It is very difficult for small finance banks to assess delinquencies. Small finance banks do not have a high
proportion of current and savings account (Casa), unlike universal banks. Casa takes time to build, hence
new banks offer a higher rate of Fixed Deposits. Banks have to match their assets with the liabilities.
Hence if a bank sees an upswing in short term assets, it may offer high rates of FD’s for a short term.
Most banks have paused loan disbursal as it a field related work. However few banks are trying to rework
a process of offering loans without any face-to-face interactions. This is majorly done by banks which
allow loans based on Aadhar based KYC (Know Your Customer) norms providing loans up to Rs.60,000
which is nearly 1.8 times the average size of usual microfinance loans which is Rs.35,000- Rs.38,000
hereby initiating an expedited digital service. (5)
The benefits can be availed certainly if there is a disruption in the class or there is a loss of income.
Though the interest not mandatorily payable immediately, it gets postponed by 3 months. To give a clear
perspective, an individual has a loan amount of Rs 100,000 and he is charged a 12% rate of interest on the
loan, then every month he is liable to pay Rs. 1000 as interest. In case he does not want to pay the interest
every month, he is liable to pay interest at 12% p.a. and accordingly he will pay Rs. 3030.10 at the end of
3rd month. Usually, if there is any delay or default in payment, it gets reported to the Credit Bureaus and
for business loans of 5 crores and above, banks report the overdue position to RBI through Central
Repository of Information on Large Credits (CRILC). No overdue payments post-March 2020 will be
reported to the Credit Bureaus/ CRILC for three months as a result of this relief package. There will be no
necessity of paying penal interest charges to banks. (6)
RECENT JUDICIAL PROCEEDINGS
A recent petition was filed in the Supreme Court seeking direction to the government of India and RBI in
response the RBI’s circular released on March 27 on the three-month moratorium loan and RBI to waive
off the accrued interest on term loans during the moratorium period of March 2020 to May 2020 by Amit
Sahni. Theplea states that “State cannot enrich itselfnor permit anyone to enrich from the unfortunate

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situation by charging interest for moratorium period.” However, the petitioner clarified the intensity of
the scheme and how it would affect the consumers by giving examples on how it would impact home
loans and auto loans. For an Auto loan of Rs 6 lakh with a remaining maturity of 54 months, the
additional interest payable would be Rs 19,000 nearly equal to an additional 1.5 EMIs.For a Home loan of
Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be nearly Rs 2.34 lakh
equal to 8 EMIs.The plea also prays for the extension of the Moratorium. (7)
BANK VS. NBFC
After the collapse of IL&FS and DHFL, the non-banking finance companies (NBFC’s) have had a tough
time to convince their investors and customers to regain the lost trust. Once again, these companies are
finding themselves in a tough spot. COVID-19 has been current pandemic situation in the county. Under
the RBI notification regarding loan moratorium/ EMI rules. As part of “Banking Institution” the NBFC’s
comes under lending institutions which offers loan to their borrowers.
At the same time, NBFC’s are not eligible to avail the three-month loan moratorium offer from banks.
This situation has put NBFC’s in a disputable position. The EMI deferrals to borrowers will mean that a
short-term liquidity shortage even when they need to keep repaying loans to banks.
“NBFC’s face a double whammy because they are offering moratorium to customers despite not getting
one themselves from their lender-banks. That will put significant pressure of many NBFC’s. By
excluding the NBFC’s, will face liquidity pressure and finally increase of debt and it takes quarter to
collect them. These NBFC’s have 2lakh crore debt obligations to others.
Unlike Banks the NBFC’s do not have systematic sources of liquidity and depend upon outside funding.
These NBFC’s is the business where mostly they lend money as small loans to low income groups and
MSME’s and which they are likely to get affected. As the impact occurs not only to borrowers but also to
the NBFC’s because they have huge burden to manage the debt which suffers from repayment of loans.
Thus, which makes the NBFC’s slowdown and will face situation like IL&FS and DHFL. The RBI need
to safeguard and pay attention to the NBFC’s so that these institutions won’t fall into a liquidity trap.
The lenders will seek extension of the moratorium on loan repayments beyond June as part of a
comprehensive package to support borrowers and revive the economy. Subsequently the prime minister
Narendra Modi extended the lockdown till May. It may be extended due to the current situation. Some of
the senior bankers have discussed the moratorium would get tougher for banks as the onus shifts to them
to reactivate the economy. As per many Public sector banks the three-month moratorium is insufficient
and the borrowers will need additional support for easing the rules and regulations for repayment. At this
situation till now the NBFC’s not been included in the moratorium. Further, the confederation of Indian
Industry is favouring NBFC for inclusion into moratorium and desired to bring under essential services
category. The banks are included under essential services category, NBFC’s not. Moreover, they are not

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able to service MSME during the lockdowns. NBFC’s should be included in the definition of essential
services.
Therefore, the RBI must take commercial decisions to extend moratorium to NBFC’s. RBI has to allow
banks to show the loans as standard even for NBFC moratorium. RBI shall monitor NBFC’s to help
government come with an economic package, if at all till the lockdown period.
Had the moratorium not been there, the GNPAs are likely to be higher due to the impact of the
coronavirus pandemic.
loan moratorium, GNPAs, NPAs, bank credit, credit growth
The interest income growth has been attributed to the decrease in gross NPAs from Rs 9.2 lakh crores in
Q1 FY20 to Rs 8.4 lakh crores in Q1 FY21.
The loan moratorium provided during the lockdown months not only gave relief to borrowers; it also
helped banks to cut gross non-performing assets. Had the moratorium not been there, the GNPAs would
be likely higher, given the impact of the coronavirus pandemic, said a report by Care Ratings. The
increase in the interest income can be observed in Q1 FY21, as despite the moratorium, the interest on the
loans has accrued and therefore considered in the calculation of interest income for the quarter, the report
added. The interest income growth has also been attributed to the decrease in gross NPAs from Rs 9.2
lakh crores in Q1 FY20 to Rs 8.4 lakh crores in Q1 FY21.
The GNPA ratio of the banks has significantly reduced by the end of the first quarter, due to recoveries
and higher write-offs. However, as per RBI’s macro stress tests for credit risk, the GNPA ratio of SCBs is
expected to increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021. Further, it may
expand to 14.7 per cent under very severe stress conditions.
Deposit holders have admitted claims of over Rs 5,500 crore from DHFL.DHFL FD holders plan to vote
against resolution on distribution mechanism“On a review of evolving liquidity and financial conditions,
it has been decided to restore normal liquidity management operations in a phased manner,” the RBI said
in a statement.RBI returns to revised liquidity management framework
Low credit growth
Despite the availability of ample liquidity in the banking system, the credit growth has remained low and
the rating agency suggested that the overall bank credit is expected to remain slower in the near term as
the SCBs are cherry-picking their credit portfolios with caution and the economic activities are subdued.
It also cautioned that if the entities that had availed moratorium are not able to run their business once the
lockdown is lifted completely, it will result in non-payment of the loan, further leading to an increase in
the GNPAs in the coming quarters.

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Interpreting Reserve Bank of India’s March 27 circular on moratorium on payment of loan
instalments, the Karnataka High Court has held that though the circular grants discretionary
power to banks to grant moratorium it is mandatory for the banks to ensure the continuity of
viable businesses so that the non-grant of a moratorium does not result in adversely affecting the
survival and continuity of a viable business.
“All borrowers are eligible to seek a moratorium. If a borrower were to seek it on the ground
that continuity of its business would be affected and establish the same, the borrower would as a
matter of right be entitled for the moratorium so that such continuity is not adversely affected,”
the court said.
Justice Suraj Govindaraj delivered the judgment on July 8 while allowing a petition filed by
Velankani Information Systems Ltd. (VISL), which owns and manages Velankani Technology
Park and The Oterra,a five-star hotel, both situated in Electronics City, Bengaluru.
Further, the court said that when multiple banks are involved in a loan transaction, one bank
cannot deny extension of moratorium facility, when another or other banks are willing to do so.
The court also said that the provision of moratorium is applicable to all loans/advances and
facilities extended by a lending institution, including the structured loans such as Lease Rental
Discounting (LRD), and not applicable only to the term loans and working capital facilities.
Also, the court directed the RBI to monitor the implementation of the March 27 circular on
moratorium, including verification of whether there are approved policies on moratorium by the
respective boards of lending institutions, and to set up an effective grievance redressal forum for
aggrieved borrowers to complain on improper or non-implementation of the circular.

“The circular has been issued to protect and preserve the economy of the country on account of
the COVID-19 pandemic. The issuance of the circular is in public interest, interest of the
economy and the country. The enforcement thereof would also come within the purview of
enforcing a public duty,” the court said while declining to accept the RBI’s contention that issues
raised in the petitions is a dispute between the banks and the borrower.

The court directed the RBI to ask all the banks to submit the board-approved policy for approval
to the RBI, to approve such policy, and verify if it contains the objective criteria.

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Case background

The HDFC Bank, along with Federal Bank Ltd. and Aditya Birla Housing Finance Ltd., had
granted ₹475 crore advance in the form of LRD to VISL.

The company had questioned the decision of HDFC Bank in rejecting its multiple pleas for grant
of moratorium as per RBI’s circular even though company had all eligibility to claim moratorium
facility as its loan account was a standard one without any default.
The HDFC claimed that VISL cannot be given moratorium as lease rentals from Tech Park are
regularly credited to the escrow account and that the moratorium cannot be extended to the LRD
facility.
Though Federal Bank and Aditya Birla Finance initially declined moratorium, they later agreed
subject to HDFC Bank agreeing to offer moratorium.

Meanwhile, Aditya Birla Finance in April cautioned VISL that the loan account with it was
likely to become a NPA as HDFC and Federal Bank were not sharing the EMI amount with the
former, forcing VISL to knock on the doors of the court.

While allowing the petition, the court directed the three banks to grant moratorium on all
payments due by VISL subject to the company making payment of interest at the contracted
period for the period of the moratorium and with a condition that the loan account is not, in any
manner, reduced.

The court also directed HDFC and Federal Bank to reserve the EMI recovered for the months of
March and April and allow the company to utilise the amounts for its day-to-day activities by
maintaining proper accounts

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