Private sector lender, HDFC Bank, has provided around Rs 500 crore to refund the interest-on-interest amount to borrowers on the moratorium loans. The bank will, however, await a final decision from Indian Banks Association(IBA) on this concerning the methodology to calculate this amount, said a person in the know.
“The bank has estimated around Rs 500 crore to compensate borrowers for compound interest. This has been recognised and provided already,” said the person quoted above. He didn’t want to be named as he is not authorised to speak to media.
On April 7, the Reserve Bank of India (RBI) had issued a circular which mandated all lending institutions to immediately put in place a Board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the moratorium period, i.e. March 1, 2020 to August 31, 2020 in conformity with the Supreme Court judgement.
The Supreme Court, on March 23, ruled that banks have to waive the compound interest to all borrowers during the moratorium period. The RBI announced a six-month moratorium for all term loans last year to help the stressed borrowers who suffered hardships during the COVID-19 lockdown period.
In order to ensure that the above judgement is implemented uniformly in letter and spirit by all lending institutions, methodology needs to be finalised by the IBA in consultation with other industry participants, the RBI had said in the circular.
“The Bank has however estimated the said amount and recognised a charge in its Profit and Loss Account for the year ended March 31, 2021,” HDFC Bank said announcing its results today.
For the banking industry, the total cost of the compound interest waiver is estimated to be around Rs 15,000 crore, according to some private estimates. But banks have already paid part of it for borrowers with loans under Rs 2 crore. Hence, the remaining burden will not be huge. It is estimated to be between Rs 7,500 crore and Rs 8,000 crore. This figure can change after a final assessment.
Cautious approach
HDFC Bank has taken a cautious approach in the January-March quarter to guard against the potential stress on its books due to the prolonged COVID situation. It has set aside more money, called provisions, to cover likely losses going ahead.
The numbers have come below expectations. In percentage terms, the Gross NPAs (non-performing assets) has jumped from 0.8 percent to 1.32 percent on a quarter-on-quarter (QoQ) basis. But, the right away to look at this is comparing with Q3 proforma NPAs, which includes the NPAs that the bank couldn’t tag as bad due to an earlier Supreme Court stay. Comparing to the proforma NPA levels in Q3, at 1.38 percent, the Q4 GNPA numbers are better.
Provisions have jumped. Compared with Rs 3,414 crore in December quarter, it has gone up to Rs 4,693.7 crore in March but that includes a build of approximately Rs 1,300 crore in contingent provisions.
In all, the bank held floating provisions of Rs 1,451 crore and contingent provisions of Rs 5,861 crore as on March 31, 2021 to cover COVID-19 impact.
Total provisions stood at 153 percent of the gross non-performing loans as on March 31, 2021.
“The provisions they carry is quite strong enough. I do not expect an earnings shock going ahead,” said Siddharth Purohit, analyst at SMC Global Securities in Mumbai.
The bank reported an 18.2 percent year-on-year (YoY) growth in its standalone profit at Rs 8,186.5 crore for the quarter ended March 2021 (Q4FY21) on account of low base in the corresponding period. The profit in Q4FY20 stood at Rs 6,927.69 crore.
Higher other income and pre-provision operating profit aided profitability during the quarter, but provisions and tax expenses restricted net income growth.
Net interest income (NII), the difference between interest earned and interest expended, grew 12.6 percent to Rs 17,120.15 crore in Q4FY21, compared to Rs 15,204.06 crore in the year-ago period, driven by credit growth of 14 percent, and core net interest margin of 4.2 percent for the quarter.
