xysoom
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Joined: 26 May 2020
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| Posted: 25 July 2020 at 10:52 | IP Logged
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India's Banks Play a Risky Game as Loan Truce Ends
Indias lenders and their shareholders are playing a
dangerous game of hide and seek.
Financial firms need to raise a record amount of
capital, something they would like to do before the
central bank‘s Covid-19 moratorium on repayment ends
next month and they have to disclose a big jump in bad
loans. So they have an incentive to pretend that their
borrowers have become miraculously stress-free. Investors
know this and are trying to ferret out bad news.
Valuations are sliding, and if policy makers have a plan
for rescuing this vital industry, they’re keeping it
close to their chests.To get more news about
WikiFX, you can visit wikifx news official website.
In March, the central bank told lenders they could
stop collecting from borrowers for three months after
Prime Minister Narendra Modi put a stop to most economic
activity to contain the virus. Since then, the regulator
has extended the timeout by another three months. But as
they announce their June quarter figures, lenders are
under pressure from the stock market to show how most of
their customer accounts have become regular again after
the lockdown was relaxed May 10.
Axis Bank Ltd. shares jumped more than 7% in Mumbai
on Wednesday after it said loans under moratorium were
down to 9.7% by value from 28% in May. It wants to raise
$2 billion to boost its capital buffers after S&P Global
Ratings cut its debt rating to junk. Non-bank financier
Bajaj Finance Ltd. disclosed that a little under 16% of
advances are frozen, a drop from 27% at the end of April.
This improvement, however, failed to cheer investors
because at least some of it came from tweaking term loans
to “flexi” arrangements where borrowers only need to
pay interest for one or two years.
More broadly, analysts are finding it hard to swallow the
sudden unfreezing, given that an average of 38% of the
book for mortgage financiers and 64% for auto lenders was
at a standstill in May. Customers paying just the June
installment would get off the list of accounts under
moratorium, “even if they have not cleared the past
dues,” says Elara Securities India Pvt.
 29/637290494704348914/ART637290494704348914_925480.jpg-
wikifx_articlepic">
Sanford C. Bernstein & Co. analyst Gautam Chhugani
has identified two other strategies. The first is to
simply deny deferment requests and keep auto-debiting
customer accounts. The other method is to help wobbly
borrowers with fresh funds, so “the underlying health of
the loan won't be known for a long time until 2021,” he
says.
The pandemic has given banks tools to do this.
Lenders have approved $17 billion out of a $40 billion
state-guaranteed small-business credit program. Media
reports suggest part of the money has gone to borrowers
on the condition that they repay old loans. Shadow banks,
especially ones exposed to troubled property developers,
are hawking new bonds. Banks can use the monetary
authoritys funding-for-lending program to buy the notes.
Here again, they want financiers to keep servicing
existing bank debt.
At $1.4 trillion, advances by India‘s top banks and
other lenders are broadly unchanged from a year earlier.
While stagnation in loan growth is only to be expected in
a shrinking economy, what’s also worrying is that
financiers accounting for three-fifths of the credit are
being judged by investors to be worth less than their
assets. Its a sharp deterioration from a year ago, when
40% of institutions by total loans were trading below
book value.
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