Insurance companies expect the claims from people affected by the floods to be upwards of Rs 1,000 crore while banks are likely to come out with loan restructuring packages, industry officials said.
The central government on Monday exempted customs duty and inter-state taxes on relief material for Kerala. “India stands with Kerala in this hour of need. The central government is exempting basic customs duty and IGST for the consignments of aid and relief materials being despatched or imported from abroad,” tweeted Finance Minister Piyush Goyal.
The State Level Bankers’ Committee (SLBC), which is expected to meet soon, is set to evolve a coordinated action plan for implementing the relief programme in collaboration with state government authorities.
“We’re expecting over Rs 1,000 crore claims from Kerala. This will mostly be from losses in motor, crop, property and animal husbandry,” a top official of a public sector insurance company said, after a meeting of insurance companies to assess the damage.
Banks are expecting restructuring of loans in the initial period, while non-resident deposits are expected to increase to rebuild property destroyed by the floods. The claims are likely to be higher this time of the year due to stocking up by retail and automobile showrooms ahead of the festive season.
Four Kerala-based banks are expected to take a hit as loan repayments may slow down. However, there may not be an immediate impact as the borrowers may get moratorium of up to two years on repayments in case of long-term loans. Banks and insurance companies have also announced waiver of higher interest rates on loans in the state and penalties on delay in premium payments.
As the repaying capacity of the people gets affected due to disruption of their economic activities and loss of assets, relief in loan repayment, by restructuring the existing loan, may become necessary. “All short-term loans, except those which are overdue at the time of occurrence of natural calamity, should be eligible for restructuring. The principal amount of the short-term loan as well as interest due for repayment in the year of occurrence of the natural calamity may be converted into term loan,” says the RBI circular on relief measures in areas hit by natural calamities.
A maximum repayment period of up to two years (including moratorium period of one year) is likely to be allowed if the loss is between 33 per cent and 50 per cent. If the crop loss is 50 per cent or more, repayment period may be extended up to five years (including one year moratorium period). “In all restructured loan accounts, moratorium period of at least one year should be considered. Banks should not insist on additional collateral security for such restructured loans,” says the RBI.
The Life Insurance Corporation has formed a special team for speedy settlement of individual life policies and claims under the Pradhan Mantri Jeevan Jyoti Bima Yojana.
“Kerala contributes around 3-4 per cent to overall loans and deposits for the banking system… There are four regional banks which have a high share of dependence on this state. Dhanlaxmi Bank, South Indian Bank, Catholic Syrian Bank and Federal Bank have 35-65 per cent of their loans and 50-75 per cent of their deposits coming from Kerala,” Kotak Securities said in a note on Monday.
Financial services firms Jefferies said the floods will lead to recovery delays and losses for banks, especially in agriculture loans, home loans and credit micro, small and medium enterprises.
The RBI’s master circular on relief measures says banks can also grant consumption loan up to Rs 10,000 to existing borrowers without any collateral.