Covid lockdown: 72% of outstanding bank credit in red zones

Covid lockdown | 72% of outstanding bank credit in red zones. Report says that nearly 72% of outstanding bank credit and 62% of deposits are in red zones. Further delay in resumption of economic activity could affect lenders’ balance sheet and could impact asset quality.

Based on the COVID-19 cases, the Ministry of Health and Family welfare has divided the every district of country into three zones:

  1. Red Zones
  2. Orange Zones
  3. Green Zones

 

Till December 2019, the overall bank credit stood at Rs 100.7 lakh crore while deposits were at Rs 132.9 lakh crore. According to a report, the outstanding bank credit stood at Rs. 72.50 lakh crore whereas deposit stood at 82.39 lakh crore in Red Zones. Care Ratings reports that the share of bank credit and deposits continue to remain the same for the quarter ended March, 2020. Further, any delay in restarting of economic activity could put pressure on lenders’ balance sheet and credit costs.

 

Red zone is further sub-divided into three regions:

  • Western Region covering around 41 percent of over all credit
  • Southern Region covering around  24 percent of over all credit
  • Northern Region- 23 percent of credit is affected

 

Care ratings report says, Mumbai along with two districts account for 72% share of Western Region in the red zone. The Southern Region in Orange Zone shares 43% of outstanding credit followed by the Northern Region at 25%. The Southern Region in the Green Zone accounts for the largest share of credit at 31% followed by the Central Region at 21%.Similar, the Western Region in the Red Zone accounts for the largest share of deposits at 35% followed by the Southern Region at 23% and Northern Region at 22%.

 

From the beginning of the third phase of lockdown, the Government had classified districts as Red Zone, Orange Zone and Green Zone. Economic activity is now resumed in Orange Zone and Green Zone but it is still restricted in Red Zone. Most big cities of India with large populations are in the Red Zone. As the majority of credits and deposits are in the Red Zone, any delay in continuation of economic activity might affect the balance sheet and credit costs of lending institutions.

 

RBI may extend moratorium on repayment of loans for another three months

The Reserve Bank of India allowed a three-month moratorium period on payment of all term loan as well as working capital due between March 1, 2020 and May 1, 2020.

 

On May 1, 2020 National Disaster Management Authority had announced lockdown 4.0 till May 31. With this extension, we expect RBI to extend the moratorium period for further 3 months. Moratorium for another 3 more months will mean that companies or individuals need not pay till August 31, 2020.

Conclusion

Presently, we are not in a good economic position. Companies are shutting down and people are losing their jobs. During the moratorium period no one is willing to pay. Lending Institutions need more money from the public to run their businesses. There is an economic slowdown which is expected to be worse in near future. In this scenario, if moratorium period is further extended it might impact countries economy and lenders’ balance sheet and credit costs. Covid lockdown | 72% of outstanding bank credit in red zones.

 

Leave a Comment

error: Content is protected !!