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Loan moratorium: SC ruling clears overhang for banks, sets path for action

Liability seen at Rs 8,000 cr if govt does not foot the bill; more transparency expected, loan recoveries to start

Topics
Banking sector | Nifty Bank index | Economic recovery

Subrata Panda & Nikita Vashisht  |  Mumbai / New Delhi 



Banks
The apex court said that banks will not charge any interest on interest or penal interest for the moratorium period

Banking stocks rallied on Tuesday after the Supreme Court refused to extend the six-month loan moratorium and allowed to tag accounts that have not been paying EMIs since August-end as non-performing assets (NPAs). The judgment clears a major overhang for the sector and that is fuelling the optimism, said experts.

The was up 1.73 per cent, and all its constituents were in the green, barring one.

The ruling provided relief for borrowers as well. The SC said cannot charge interest on interest for the moratorium period and the amount so collected must be refunded in the borrower’s next instalment. Earlier, the Centre had waived off interest on interest for loans up to Rs 2 crore.

According to ICRA estimates, the compound interest across all lenders is Rs 13,500-14,000 crore. Excluding the relief for loans up to Rs 2 crore (estimated cost Rs 6,500 crore), an additional relief of Rs 7,000-7,500 crore will need to be provided to borrowers.

While this provides clarity on possible financial impact on lenders (should the government not foot the bill), and NBFCs now get more flexibility.

For one, lenders can now initiate recovery proceedings since the SC has lifted the standstill on asset classification, which protected stressed accounts from slipping into NPAs. Besides, the ruling will lead to more transparency for investors.

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First Published: Tue, March 23 2021. 20:38 IST

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