The Chairman of Association of Banks, Rakesh Ram says re-possessing assets, securities and properties of those customers who are unable to make loan repayments because of the COVID-19 pandemic will not give banks the best outcome as the market is still depressed.
Ram who is also HFC’s CEO says the scenario is unique as all commercial banks have been impacted and all have given loan deferments and their risks have significantly increased.
He confirms that $3.6 billion loan deferment has been provided by banks as at 31st July this year, and even at a best-case scenario of 10% default rate, it will result in $330 million of additional provision for doubtful debts.
He says the banks will have to weigh the options to get the best outcome for both the banks and the customers.
Ram says the worst-case scenario is that banks will have to start taking action to get the money back, but says he does not know when this will happen.
The Chairman of the Association of Banks says selling assets is not the banks intention and is not the core business however banks have to be mindful of the interests of its investors and shareholders and recovery action will be the last action and will only be exercised if all other remedial actions fail.
Ram says banks are also suffering and it also needs to protect its balance sheet and interest of shareholders and investors.
He confirms loans given by commercial banks are not insured.
Ram adds with banks absorbing substantial level of bad debts to its books and a significant increase in risk to its asset quality, it is not the right time to reduce interest rate on lending. He says the reality is that the banks will have a huge level of provision for bad debts.
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