The concerns that kept moratorium and restructuring requests down

Disincentives, borrowing behaviour change, business recovery have kept references for restructuring low, ICRA said

By the time the loan restructuring window closed on December 31, 2020, banks had received such requests for barely 2 per cent of the loan book — and not in double digits, as was initially feared. 
 

According to bankers and analysts, overall, the requests might cover Rs 2 trillion, or even less. And in the case of retail loans, especially, these are hardly enough to cause any worry.
 

There are multiple reasons for this. Indian Bank MD and CEO Padmaja Chunduru says that though lenders reached out to customers to make them aware of the restructuring options, there were some "apprehensions and stigma” related to restructuring. Customers are also worried that their credit score might go down if they availed of the benefit. The recovery is coming well. As long as borrowers are able to pay and asset quality remains good, it is ok, Chunduru says.
 

Indian Bank expected restructuring proposals worth Rs 4,000 crore from the corporate side, but received around Rs 3,500 crore. On the retail side, against the expectation of Rs 3,000 crore, the bank received proposals of only Rs 300 crore.

The filters used by the Kamath committee on restructuring also proved to be restrictive, preventing many companies from availing of the benefit.
 

Most impacted by the Covid-19 dislocations were micro, small and medium enterprises (MSME) as well as SMEs. The Emergency Credit Line Guarantee Scheme (ECLGS), however, kept them afloat.
 

“The ECLGS scheme played a very big role in providing liquidity to the sector,” says Prakash Agarwal, director and head-Financial Institutions at India Ratings & Research. “The system pumped in more than Rs 1.5 trillion of liquidity to the sector, and that enabled SMEs and MSMEs to carry on with their business.”

 

As for companies, they were anyway already stressed. “A substantial portion of the weaker companies had already slipped over the last five years. Over these years, banks also have been cautious in their incremental lending by avoiding weak borrowers,” Agarwal says. “Further, there is a concern that restructuring could impede future availability of funds to them.”

Banks replaced corporate loan book with retail lending, and that helped. “In the last few years of cleansing, and focus on granular lending or to retail has resulted in most companies not requiring any restructuring,” says Nitin Aggarwal, senior analyst, Motilal Oswal. 

“In retail, as such, the recovery has been sharp, and for most businesses, macro data points are showing strong recovery,” Aggarwal says, adding that in the case of private banks, the restructuring requests would be even lower at 1-1.5 per cent. 
 

Rating agency ICRA said disincentives, borrowing behaviour change, alternative relief mode and business recovery have kept references for restructuring low. The response was much lower than previously estimated due to sharper than expected improvement in economic activities and liquidity support through the ECLGS. 
 

“The analysis showed that 27 per cent of entities in its rated portfolio had sought a moratorium relief between March 1 and August 2020. But the intention of borrowers to restructure their loans remained low at only 2 per cent,” says Anil Gupta, sector head-Financial Sector Ratings, ICRA. 
 

There is also hesitation on the part of borrowers to cede control over their cash flows. Upon restructuring, all the business receipts and repayments are mandated to be channelled through an escrow account to be maintained with one of the lenders.