Loan moratorium case: Adverse SC verdict could heavily affect banks in Q2

Financials of banks may take Rs 10,000 - Rs 20,000 crore of hit if interest on interest is waived

The highly anticipated Supreme Court (SC) hearing on ‘interest on interest’ for loans under moratorium is scheduled for next Monday. A back-of-the-envelope calculation indicates that banks are staring at a Rs 10,000-20,000 crore hit on their profit and loss statement if the verdict is unfavourable.
 
While this is about two per cent of total banking sector loans, analysts at Motilal Oswal Securities (MOSL) estimate that banks’ operating profits could take a 24-111 per cent hit in financial year 2020-21 (FY21). If a final verdict is delivered on Monday and is unfavourable for banks, their September quarter results may be