Here are the measures undertaken by one of the top private bank – ICICI Bank to safeguard the balance sheet against the pandemic. It also covers Mr. Sandeep Bakhshi, ICICI Bank’s MD and CEO’s take on how he is tackling potential risks and uncertainties

The current scenario has tested the resilience of banks while dealing with unprecedented global economic challenges. All the leading banks have followed certain strategies to cushion the impact of the pandemic, including their loan book under the RBI’s moratorium policy. Let’s look at ICICI Bank’s approach below.

What is Moratorium Period?

Moratorium period means it delays the EMI (Equated Monthly Instalment) for the given time period. Usually loan repayment begins as soon as the loan is disbursed. In other words, moratorium is actually a type of grace period offered to borrower on a loan amount after it is being disbursed. However, borrower need to pay the interest accrues during the moratorium period. It is also called as EMI holiday or deferment period.

Examples of Moratorium Period

Let us take moratorium period example to understand the concept. There are many personal banking services offered by private banks. In-case of home loans, when there is a delay in construction, banker offers EMI holiday to their borrowers.

Here is another example of moratorium period for education loan to understand it better. Usually educational loans are repaid after graduation is completed and student gets the job. The duration from the day education loan is disbursed to pay college fees till he completes its graduated and get a job is actually a moratorium period. Student need to pay EMI after moratorium period is over.

Moratorium Period under Covid-19

In view of your Covid-19 crisis, we are forced to live and experience a life which was never before. We have to fight this particular crisis and help ourselves and our family to be safe through this short-term situation. At this particular point of time we are following Government of India guidelines for our safety.

Role of banks are important for economy growth and development of the country. The Reserve Bank of India (RBI) have extended a choice to avail six-month moratorium period to each borrowers of NBFCs, Banks and FIs on their debt-servicing obligation, up to 31 August 2020.

In simple words, it means that borrowers will not have an obligation to pay their EMI instalment prescribed by the RBI for the period of 6 months. The whole loan agreement between the borrower and lender remains the same except for the moratorium. The moratorium is anticipated to ease interim liquidity during pandemic situation.

Sandeep Bakhshi CEO, talks about ICICI Bank

“Our intention has been to cushion the balance sheet from the potential risks arising out of uncertainties around the trajectory of the pandemic and the pace and level of economic activity” – Sandeep Bakhshi, MD and CEO, ICICI Bank.

In the quarter June 2020, ICICI Bank saw its provisions fall by 42% year-on-year (excluding Covid-19 related provisions and provision for tax). However, the bank made additional provisions for Covid-19 of INR 5,550 crore in Q1-2021.

As mentioned by Sandeep Bakhshi, the Bank’s MD and CEO, this was done with the objective to completely cushion the balance sheet from adverse effects of the pandemic. ICICI Bank continues to have a high provisioning ratio on NPAs, and has further increased its provision coverage ratio 78.6% as of June 30, 2020.

As for the loan moratorium policy put forward by the RBI, from 30% of the loans under moratorium by the end of April, the loans to customers where the moratorium was effected for June repayments were at 17.5% of total loans, on June 30, 2020.

“While moratorium trends would continue to evolve, we do not see these as a conclusive indicator of eventual outcomes” – Sandeep Bakhshi, MD and CEO, ICICI Bank.

The bank’s strategy for moratorium is to monitor and analyse portfolios, watching certain markers such as cash flows, deposit account data, income levels, leverage, sources of income, industry of employment or operation, and repayment behaviour.

Conclusion

The current pandemic has been a unique challenge to banks. However, with a consolidated strategy, banks have been able to protect their balance sheet from excessive shocks. ICICI Bank have proven to be quite resilient in the face of this unique challenge.