Share Market Update:- SC decision on Full Interest waiver during the moratorium Period

Share Market Update:- SC decision on Full Interest waiver during the moratorium Period

Share Market Update:- SC decision on Full Interest waiver during the moratorium Period

The Supreme Court on June 12 said it is not considering a full interest waiver during the moratorium Period.

The Reserve Bank of India had on June 4 said lenders will lose Rs. 2 Lakh Crore if interest is waived during the moratorium period.

Supreme Court Hearing on Interest Waiver

The Supreme Court (SC) resumed its hearing on 12th June 2020 on the petition seeking interest waiver during the moratorium period.

Currently, ~39% of banking system credit is under moratorium. Three crucial aspects of the moratorium were under the scanner. Firstly, whether interest should be charged during the moratorium period, secondly, whether interest should be charged on the accrued interest and thirdly is the moratorium binding on banks/NBFCs or discretionary. It has been noticed that while some are offering moratorium across the board, others are offering on a case to case basis.

SC on June 12 said it is not considering a full interest waiver during the moratorium period

SC ruling out the question of Rs 2 lac cr interest waiver for the six month moratorium period will come as a relief for the banking sector and remove the overhang of any systemic debacle on the sector on account of full interest waiver. In our view, a complete interest waiver challenges the very business of banking, given the aspects of asset-liability management and handling deposits with a one-sided moratorium.

SC on compounding of interest during moratorium period

The SC, however, added that it is limiting the scope of waiver to levy of interest on deferred interest. It will deal with only the issue of interest on interest. If the SC rules that banks cannot charge interest on the 6-month moratorium period capitalized interest, the impact is likely to be more on longer tenure loans like Home loans & LAP. If such a ruling does take place, the overall impact will be relatively moderate. However, it is possible that the moratorium number will go up. A look at some of the moratorium numbers announced by banks/NBFCs.

Moratorium numbers

Outcome

The government will consult RBI in the next three days, to formalize a view. The apex court deferred the hearing in the case to June 17th, 2020. In our view, this Petition being dismissed offers the most prudent option for the banking sector. for more click here,

Short Term buy recommendation for bank stocks.