The Reserve Bank of India’s (RBI’s) move to announce fresh round of restructuring of loans for individual and small borrowers for up to two years is a start of a conceivable long-drawn battle, say analysts who hailed the timed action by the central bank but fell short of giving a judgement on the have an effect on on the sector.
The conceivable have an effect on on the banking sector of the announcements is difficult to be assessed these days as the Covid-19 situation remains precarious, they say.
“The RBI has done something first of all which addresses the concerns of, both, the lenders and the borrowers on account of the uncertainty because of the rising cases and subsequent lockdowns,” says Gaurang Shah, senior VP at Geojit Financial Products and services.
He adds: To pre-empt the situation and remark on the have an effect on is extremely difficult at the moment because we don’t understand how long the native lockdowns will stay or if the vaccination drive will pick up sooner than expected to fortify the economic situation.
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RBI governor Shaktikanta Das, in an unannounced press convention Wednesday morning, doled out “first of the many” measures to beef up the economy all through an unwavering second wave of Covid-19 infections.
The RBI, as an example, will have a special long-term repo operation window for small finance banks, whereby the banks can borrow funds up to Rs 10,000 crore at repo rate for deploying for fresh loans SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower. Also, lending by SFBs to MSMEs will be classified as precedence sector lending (PSL).
The measures, AK Prabhakar, head of research at IDBI Capital says, were the need of the hour as the Covid-19 situation becomes murkier day after day.
“The small and micro enterprises and the MFIs needed beef up and the RBI has thrown a liquidity lifeline at them at the correct time,” he says with a rider that the turnaround for the sector will take time.
That said, the measures will make certain that the liquidity for them will not stop as being PSL will incentivize banks to lend to them at lower rates; effectively cutting their cost of lending too, he explains.
At the bourses, investors cheered the announcements and sent shares of small finance lenders soaring. A few of the individual stocks, Ujjivan SFB gained 6 per cent to Rs 30.40, while AU SFB used to be up 5 per cent to Rs 58.80, followed by Equitas SFB (up 4 per cent at Rs 58.80) and Suryoday SFB (1 per cent at Rs 248.80) on the BSE in the intra-day commerce.
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At the end of March quarter of FY21, small commerce loans (SBL)-MSME loans accounted for 39 per cent (Rs 13,891 crore) of AU Small Finance Bank’s complete loan book; and 44 per cent (SBL), 7 per cent (MSE), and 18 per cent (micro finance) of Equitas SFB’s complete loan book. As regards Ujjivan SFB, MFIs and MSE loans accounted for 73.2 per cent and 8.4 per cent of the lender’s complete loans at the end of Q3FY21.
The RBI also announced that individual borrowers and small businesses, with loan outstanding of up to Rs 25 crore and who did not avail for moratorium or restructuring relief final year, as an example, can ask for restructuring of their loans for up to 2 years.
Meantime, individual borrowers and small businesses that availed the facility final year but banks allowed restructuring of less than two years can now avail the facility and tell banks to increase the residual repayment window to up to two years in complete.
The move, Siddharth Purohit, fairness analyst at SMC Global says, will be positive for SME businesses as they were already facing issues. In addition, he doesn’t expect many cases of restructuring to come forward whether the current trends of restructuring requests is anything to go by. “Overall, the announcements are good for the banks as they may be able to keep away from NPAs again,” he adds.
AU Small Finance Bank’s restructuring book stood at 1.8 per cent of complete loan book (of which wheels and SBL accounted for 90 per cent), while Equitas said its collection efficiency has improved to 91.1 per cent of pre-Covid level as of Q4FY21. The lender didn’t disclose quantum of restructuring requests.
Overall, the announcements appear to be sentimentally positive even as analysts imagine they may take time to show meaningful have an effect on on the ground.
“RBI’s decision to keep away from giving a blanket moratorium appears to be the correct decision provided the localised lockdowns & micro containment zones unlike strict country wide lockdown final year. The measures provides flexibility to banking system to recast loans to give case particular relief to small borrowers, MSMEs and individual borrowers. Overall, the measures are focussed on easing liquidity issues for lenders, soften credit cost and boost credit cycle,” says Gaurav Dua, Head-Capital Market Strategy, Sharekhan.
Naveen Kulkarni, chief investment officer at Axis Securities sees Ujjivan SFB and Equitas SFB in conjunction with MSME lenders such as DCB Bank and City Union Bank benefitting from the measures.