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The RBI gave financial institutions an option to provide a moratorium for borrowers from 1st March 2020. If we decode the Reserve Bank of India announcement, it is aimed at two actions.

First, allowing borrowers not to have an EMI burden when economic activity is down. Borrowers may not get the income which may reduce the capability to pay EMI during this pandemic. This will safeguard the borrowers’ interest. Second, it gave an option to the institutions to let borrowers pay interest during the moratorium and allow banks/NBFCs (Non-Banking Financial Companies)/Investors to continue getting returns during the moratorium period.

This move by RBI was welcomed by borrowers’ who got more time to sort out their financials. A number of banks including ICICI, SBI, HDFC etc. have given their borrowers an option to opt for a moratorium. The Supreme court also directed RBI and the government to include more sectors, one of them being agriculture which was severely affected. 

According to LiveMint research, NBFCs and banks had 59% and 29% loans under the moratorium from April to June respectively. On a weighted-average basis, this amounted to Rs. 28.3 trillion and 30.6% loans. This has severely affected the liquidity condition of various NBFCs, especially the lower-rated and small entities. While the same being reflected in the books resulting in a hit for estimated profits. Loan sell-down which has been around Rs 2 lakh crores over the last two fiscal years will be impacted due to asset quality concerns.

As per the TransUnion CIBIL, there will be a trend of stricter credit policies towards lending platforms especially for the borrowers who opted for a moratorium during this phase. Moreover, a drop is expected in approval rates from lenders. 

At LenDenClub, for the months of April, May and June, 65%, 76% and 86% of the borrowers respectively paid their EMIs while the rest opted for the moratorium option. After the announcement of Unlock 1.0 in early June, we are observing a trend where borrowers who opted for the moratorium earlier have restarted paying their EMIs.

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