COVID moratoria to be unwound from April 1

• Specific instructions will be issued to banks and finance companies shortly
• Banks and finance companies have been asked to share their comments
• CB’s Road Map indicated its intentions to unwind moratoria barring one on tourism
• “We want to ensure that unwinding will lead to a soft landing”- Cabraal

The payment holidays on loans of the pandemic-affected borrowers and other relief afforded to them during the pandemic, which were extended a few times, will expire effective from April 1 and specific instructions to banks in this regard will be issued shortly. 

The Central Bank, under its Road Map announced on October 1, 2021, indicated that it would unwind the moratoria, except for the tourism sector, after the broader package of moratoria expired on December 31, 2021, for the sake of the stability of the financial services sector.

As part of its broader assistance package, the Central Bank from April 1, 2020 onwards afforded payment holidays and fee waivers on scores of borrowers, who became victims of the pandemic-induced lockdowns. The final round came to a close on December 31, 2021.

The moratorium on tourism and related sectors dated back to April 2019, when the sector was hit by the Easter Sunday attacks, which temporarily blew the industry prospects.
Moratorium on the tourism sector is scheduled to end in June 2022.

Hence, under these circumstances, when the broader payment holidays have already come to an end and the moratoria on the tourism sector is set to phase out from June onwards, it wasn’t immediately clear what Central Bank Governor Ajith Nivard Cabraal meant by the April 1 expiry date.

“As we know, we have some extensive moratoria (extended) over the last two years for borrowers to be a lot more comfortable with regard to phasing of COVID and the imperfections that they have encountered as a result of COVID,” Cabraal told a press briefing held last week.

“We have to unwind at some stage. And we are hoping to unwind that from April 1, 2022, which means, we have to have a package as to how this unwinding is going to take place,” he added.

By the end of September last year, 10 percent of loans out of the total gross loans of the banks rated by Fitch Ratings was under moratoria. Fitch covers majority banks in their ratings. This was a drop from 26 percent at the first half of 2020.

“Already the Central Bank has shared with the commercial banks as well as the finance companies as to how that is going to be unwound and we have asked for their comments,” Cabraal said.

“Very soon we will be issuing a Direction after receiving the comments from the financial sector,” he said.

“We want to ensure that the unwinding will lead to a soft landing and that the businesses as well as the banks won’t get affected unduly and that’s what we are hoping to do very soon,” he added.