Rural customers start thinking it’s their right not to pay. NBFCs have to spread awareness among customers to de-sell the moratorium, says Abhimanyu Munjal, CEO, Hero FinCorp
The six-month moratorium on loan repayments will hurt the balance sheets of Indian non-bank financiers, as most borrowers availed the scheme, but the lenders were denied the benefit by banks, said industry experts.
Speaking via videoconference at CII’s Annual Session 2020 on Tuesday, the experts said while the moratorium will help borrowers, it was not the most effective solution to the problem. Moderated by Sanjiv Bajaj, managing director, Bajaj Finserv, the panel included Sanjay Nayar, chief executive, KKR India; Abhimanyu Munjal, chief executive, Hero FinCorp; Amit Chandra, managing director, Bain Capital Private Equity; and Krishnan Ramachandran, chief executive, Max Bupa Health Insurance.
“To benefit borrowers, we know that the RBI has introduced a moratorium on all loans and has extended it by another three months. This is causing some worry for NBFCs, which will not get paid by borrowers for six months, but have to pay back to the banks," said Bajaj.
Therefore, at the end of the moratorium period, there could be much higher non-performing assets (NPAs) and lot of work going into collections, he said. “It could end up hurting the balance sheets."
According to Nayar, the moratorium was purely a survival tactic and pushes the can down the road, as the underlying quality of cash flow of the borrower will actually be getting worse. Lenders had sought a relaxation on provisioning norms from the RBI on debt recast, a proposal that the regulator has not yet accepted.
Munjal said that one-time restructuring is a solution. The worry is that retail customers may become habituated to not paying, and six months is a very long time, he said. “The rural customer starts thinking it is their right to not pay. There is a moral hazard there and NBFCs and banks have to spread awareness among their customers to ‘de-sell’ the moratorium," Munjal added. De-selling is about sensitizing customers about the deferment, including its disadvantages.
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