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As moratorium ends, NPAs may rise in January

MUMBAI: Non-performing assets in the wholesale book is expected to rise from January, as an increasing proportion of the loan book comes out of moratorium. Nearly Rs 70,000 crore worth of advances to infrastructure developers would be out of a stipulated moratorium period in January, according to India Ratings. Some of these exposures may turn delinquent, as cost of funds have risen, and liquidity is tight.

These NBFCs are large lenders to developers. A third of developer loan book of NBFCs was under moratorium where interest payment was happening, but principle payment was to start from January. Delinquencies may increase on these accounts on a case to case basis.

“The principal moratorium is estimated at 50-70% of assets for some non-banks, going as high as 90% in some, as per Crisil.

With the moratorium period of these facilities gradually coming to an end, we expect the asset quality to come under pressure. There has also been an increase in softer delinquencies for nonbanks in the current fiscal reflecting the build-up of stress.

“The share of loans under moratorium in the wholesale or real estate segments of non-banks tends to be high as much as 70% in certain cases given the typical maturity profile of real estate loans,” said Karthik Srinivasan, senior vice-president Icra.

Most lenders are wary of developers because of unsold inventory. While banks have slowed down their exposure to developers, NBFCs have aggressively expanded in this segment. NBFCs saw over 30% increase in loan book till 2017-18.

This, coupled with the high prepayments or exits through refinance or take-out, helped support the asset quality despite the slowdown in the borrower segments. However, banks raised borrowing cost by 150-200 basis points after the IL&FS default.

“For these borrowers liquidity constraints may continue since the developers are saddled with unsold inventory and also since fresh funding has become difficult to come,” said a senior bank official. “NPA is likely to increase only marginally in the fourth quarter as lenders have already classified many of the big accounts as NPA. Cost of funds to the developers has also increased by 150-200 bps.”

Source: Economic Times