The blanket extension of loan moratorium beyond August could lead to financial instability, the latest SBI Ecowrap report says. It also adds that increased borrowings by individuals merit attention. The report says even as the COVID-19 pandemic rages through the Indian hinterland, the good news is that financial stability has returned to the markets with a proactive RBI and a government guarantee helping to ease the fund flow to a significant extent. “Clearly, the RBI policy of constrained discretion in monetary policy-making has yielded rich dividends,” the report suggests.

Rate transmission by banks has been the fastest in history with banks cutting rates on an average by 72 basis points on fresh rupee loans in 4 months, the report adds. Consumer leverage in lieu of exposure to the stock market has increased by Rs 469 crore that could be a potential source of financial instability, the report says. The SBI, however, cautioned against allowing the blanket extension of moratorium beyond August. It also says the moratorium data as published by RBI are at variance with data published by banks and NBFCs.

Additionally, consumers are also vigorously using gold holdings on their household balance sheet by taking gold loans. Also, companies with adequate balance sheet are merely using the moratorium to conserve cash in current uncertain times, it adds. “Companies with adequate balance sheet strength have also opted for a breather…sector wise analysis, from asample of more than 300 companies with total rated debt of around Rs 4 lakh crore by ICRA reveals at least 40% of such amount are in sectors that have acomfortable debt equity ratio,” it asserted.

Around 70% of the total moratorium, by total rated limit, has been availed by companies which are rated A and above. “Clearly, as of now, the moratorium data for both retail and corporate is not significantly perturbing,” it says. The RBI in May extended the moratorium on payment of all term loans by another three months till August 31 to help borrowers. The decision followed after the central bank allowed a three-month moratorium on payment of all term loans due between March 1 and May 31.

The SBI report also says that due to spate of unplanned and unintelligent lockdowns across the country, the job market continues to be in a significant state of flux, with news of layoffs gaining traction across several sectors. Besides, the SBI suggests that the government should ensure the banking sector is adequately capitalised and must avoid a repeat of what happened after the global financial crisis. “This is possible if banks exercise utmost caution and adequate due diligence in their commercial decisions,” it added.