India's loan-repayment moratorium has been a boon for borrowers. Financiers worry that it is damaging the financial system
India went into a strict lockdown in March, its central bank allowed borrowers to put off loan repayments for three months. That moratorium has since been extended by a further three months, and another extension is reportedly being considered. It appears to have been a boon to borrowers. But top financiers, such as Deepak Parekh, the chairman of, a big mortgage lender, and Uday Kotak, the chief executive of Kotak Mahindra Bank, are beginning to worry that it is damaging the financial system.
Huge numbers of borrowers have availed themselves of the payment holiday. In its financial-stability report, published on July 24th, thenoted that half of all loans went unpaid in April. Fully two-thirds of loans made by publicly controlled banks, which hold 70% of the industry’s assets, were unpaid. A smaller yet sizeable chunk of lending went unpaid at private banks, from a third of total loans at domestic lenders to a tenth at foreign ones.
Banks’ earnings reports for the second quarter, released over the past two weeks, suggest that the take-up of the schemes may well have reflected the exigencies of lockdown. Axis Bank and, large private lenders, reported that loans held under moratorium had fallen from 30% in April to under 20% in June; Kotak Mahindra reported a fall from 26% to 10%. State-owned banks are only beginning to release their earnings, but their use of the moratorium seems likely to have fallen too.
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