In the past, the central bank had granted forbearance for loans to small businesses during demonetisation. More recently, relief was granted to small borrowers impacted by the goods and services tax (GST). A forbearance from the RBI would help banks as they would not have to classify a loan as a non-performing asset (NPA) even if the borrower misses the payment deadline.
In a report released on Thursday, Macquarie research analyst Suresh Ganapathy said that there is no likelihood of the government compensating the private sector for flood losses. This would mean that banks would have to brace for higher bad loans and general insurers for more claims.
“There will be aid given to the state, but there won’t be any bailout of the private sector. There could be some regulatory forbearance with respect to, say, agri or SME loans, whereby the RBI gives some relaxation with respect to non-performing loan (NPL) classification. But as we have seen in the past, whether it was demonetisation or GST, once the forbearance is given, people don’t pay back. So we will see NPLs increasing from Kerala,” said Ganapathy.
Among the lenders, old private banks have the biggest share of exposure to the southern state. These include South Indian Bank (41.2 per cent), Federal Bank (35.8 per cent) and Canara Bank (7.1 per cent). Agri loans comprise 20 per cent of all loans by banks in Kerala. Unlike banks, no insurance company has its business concentrated in Kerala.
United India generated 6.2 per cent premium from the state, followed by New India (5.2 per cent), and Oriental Insurance (4.7 per cent). Among private insurers, HDFC Ergo has a relatively higher share of 2.2 per cent with Bajaj Allianz General Insurance and ICICI Lombard having an even lower share. Since insurers take reinsurance protection against catastrophic events, the maximum impact on profits is likely to be 3-4 per cent, the Macquarie report said.
When it comes to insurance losses, Macquarie expects that the claims would be lower than in Chennai floods. “Kerala as a state is expected to have much lower insured losses-to-economic losses ratio compared to Chennai, which is far more industrialised. In case of Chennai, the insured losses were almost 30-35 per cent of the actual losses. The state-owned insurance companies are likely to bear the bulk of the losses as they have a much larger presence,” said Ganapathy.