On Bank Moratoriums
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(thread)
Banks/NBFCs have not been very transparent about how they define Moratoriums. The classification is not standard and even if it was, Morat is not a good measure to estimate credit costs.
Morat is not like a (comprehensive) 'Watchlist' which becomes the only sources of stress.
Morat is not like a (comprehensive) 'Watchlist' which becomes the only sources of stress.
If Morat comes down from 60% of the book to 40% it doesn't meant much. As 40% of the book would not go bad anyway (although it has done so for some in the past). The stress will be in the last 10% to 20% of the book. It's that last mile that would matter.
It's likely that a substantial part of the stress could come from the book outside Morat.
A large pvt sector bank said it did not extend Morat 2 to a lot of customers. Giving Morat is not a right that the bank has but it can make the process of taking Morat unduly cumbersome.
A large pvt sector bank said it did not extend Morat 2 to a lot of customers. Giving Morat is not a right that the bank has but it can make the process of taking Morat unduly cumbersome.
Why would it want to do that? To improve collections!
A customer might have multiple loans and if he is under stress he would probably be able to may repayments only to the first ones to demand it.
The downside to this approach is that the demand itself can precipitate stress.
A customer might have multiple loans and if he is under stress he would probably be able to may repayments only to the first ones to demand it.
The downside to this approach is that the demand itself can precipitate stress.
If you extend Morat to everybody it does give you more time, you don't have to provide for stress & your book value is not impacted but the eventual recovery could also be lower and credit costs higher.
A firm wanting to raise capital soon might take this (poorer) approach.
A firm wanting to raise capital soon might take this (poorer) approach.
What (ideally) banks should disclose is percentage of thebook that is zero days past due (0 dpd) & bounce rates/collection efficiency. A client under Morat 2 would be expected to make first EMI payment only in Sep. So even Q2 number will not have the correct stress figures.
It could be the case that a client has paid Jun EMI and has been taken out of Morat but is not able to pay July/Aug demands in which case he can 1. again be extended Morat or 2. be recognised as a stressed account.
The movement will probably not be linear.
The movement will probably not be linear.
That said lower Morat is still a positive indicator because that means either the stress is lower or it is being recognised earlier.
But it is still not a simple exercise to estimate credit costs (which is what finally matters).
But it is still not a simple exercise to estimate credit costs (which is what finally matters).
If in a 2 hour concall a bank can't explain how it has calculated the moratorium then, it is probably not a good sign.
Disclosures on 0 dpd, bounce rates, collection efficiency, SMA 1 are desirable.
Transparency is a proxy for good Management & good Balance Sheet.
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Disclosures on 0 dpd, bounce rates, collection efficiency, SMA 1 are desirable.
Transparency is a proxy for good Management & good Balance Sheet.
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