30% of pre-covid good payers who had opted for moratorium are struggling to repay now

Making timely payments on the loans become a tall order for those whose financial position has been impacted due to Covid-19. Lockdowns in certain parts of the country will result in a decreased level of income for many businessmen while many salaried individuals are yet to get new jobs or reversal of their pay-cuts that happened last year.

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Any fresh credit in future will depend on the individual’s credit score. It becomes all the more important for individuals to keep paying EMI on their loans in order to maintain their credit score. In order to get a pulse of the borrowing scene amidst Covid-19, FE Online in an email interview got in touch with Anshuman Panwar, Co-Founder, Creditas Solutions. Here are some excerpts:

What is the situation at the banks as far as recovery is concerned?

From the perspective of financial institutions, the COVID-19 crisis triggered specific implications for managing and mitigating credit risk. In the past few months, banks have been adjusting to the new dynamics and exploring potential new approaches to the challenges. In the absence of physical collection through recovery agents, banks are relying on digital customer engagement to avoid increasing delinquencies

What has been the general impact of Covid-19 led financial situation on the retail borrowers?

During the moratorium, a number of salaried professionals, business owners availed the RBI sanctioned moratorium, just to be able to save some liquidity in the hour of need. As per independent surveys, around 45% of retail borrowers had availed RBI’s moratorium facility.

• Cheque bounce rates are still about 20% higher than their pre-covid levels and with the second wave of Covid, are expected to go up
• The bounce rate for customers who had a High Credit score pre-covid is at about 24%
• The bounce rate for customers who had a Low Credit score pre-covid is at about 46%
• Roughly 25-30% of customers who pre-covid were considered as good payers, opted for the moratorium and subsequently are struggling to repay.

The loan moratorium scheme was extended up to August 31 and then individual retail borrowers had the option to go for the RBI restructuring scheme with banks. How far has it been successful and approximately how many individual borrowers would have availed of the RBI restructuring scheme?

The one-time restructuring schemes had permitted debt recast without a downgrade to the non-performing category and were available to all borrowers. These schemes closed in December for large borrowers and in March for small businesses.

RBI restructuring scheme was availed by around 20% of customers who had opted for the moratorium scheme. It has been helpful since there was still a large population of borrowers who needed more time to build their finances and asked banks to restructure their liabilities.

To further help the borrowers, in August’20, RBI came up with the one-time restructuring scheme for personal and corporate borrowers affected by the COVID-19 stress. As per the industry trends, an average of 12-15% moratorium customers opted-in for the scheme. Most of the borrowers lay in the middle age group and were either self-employed professionals or in business and were mostly concentrated in the metropolitan cities.

How was moratorium 1.0 different from moratorium 2.0?

In the first month of moratorium 1.0 less than 10% of the customers opted for the facility. However, with the extension of lockdown and peoples earnings getting affected more customers opted for the facility to the effect that RBI extended the Moratorium for another three months period that is till August’20. Moratorium 2.0 saw a huge surge in the opt-ins to up to 43% of customers enrolling for it.