Moratorium scheme to drag banks' earnings by 7-18% in FY22, says Jefferies

"Small to mid-size enterprise (SME) and retail have dominated moratorium book, with relatively lower take-up from larger corporate. It is encouraging to note that lenders are now finding more comfort in borrower's ability to pay and hence discouraging moratoriums and some NBFCs saw reasonable fall in moratorium loans between Phase-1 and Phase-2," Jefferies noted.

The Reserve Bank of India on May 22 had extended the moratorium relief for all term loans and working capital loans by another three months till August. The RBI on March 27 had permitted all lending institutions to allow a three-month moratorium relief to their borrowers from March 1, 2020 up to May 31, 2020 to help ease any debt servicing for borrowers impacted due to COVID-19. This has now been further extended by another three months up to August 31, 2020.

The brokerage has factored that aggregate slippages in FY21 will be 1.8x FY20 levels and FY22 will see slight moderation. "Assuming FY20 as normalised year of slippages, the additional stress baked into our forecasts (for ICICI, Axis, Kotak and SBI) indicates that we have 10 percent slippages from moratoriums built-in.

Jefferies believes that the implied buffer might be tad understated as banks may see some fall in moratorium loan and final restructuring of loans may be the right benchmark to assess the potential slippages.

As compared to the global financial crisis, the report does not expect such a high extent of slippage as many borrowers have taken moratorium purely for cash conservation and the share of retail loans is much higher now. It expects RBI to offer a restructuring package that will allow the borrowers to normalise businesses before resuming full repayment.