Supreme Court verdict on loan moratorium today: What analysts say

Supreme Court verdict on loan moratorium today: What analysts say

NEW DELHI: Bank stocks are in focus on Tuesday as the Supreme Court will pronounce its verdict on the extension of loan moratorium and other reliefs in view of the Covid-19 pandemic.

The Centre had earlier submitted before the top court that if it were to consider waiving interest on all the loans and advances to all categories of borrowers for the six-month moratorium period, the amount foregone would be more than Rs 6 lakh crore.

If the banks were to bear this burden, then it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the lenders unviable and raising a very serious question mark over their very survival.

The government said this was a main reason as to why the waiver of interest was not even contemplated and only payment of instalments was deferred.

Banking stocks such as Bank of Baroda (down 19 per cent), PNB (down 7 per cent), Kotak Mahindra Bank (down 6.5 per cent), ICICI Bank (down 6 per cent) and SBI down (5.8 per cent) have fallen up to 19 per cent in last one month. These stocks were trading sideways in early trade on Tuesday.

It’s a big issue, said G Chokkalingam, chief investment officer at Equinomics Research and Advisory.

“If the concession (to banks) is not given, it will be a big hit on bottom lines,” he said, adding that with the vaccination drive in place, the moratorium cannot be extended forever.

“What I feel is banks are unnecessarily facing hurdle of not recognising NPAs due to moratorium. They cannot take action those not paying dues and are thus impacted. If the verdict comes in favour, it would be positive for banks,” said Sunil Jain of Nirmal Bang said.

Jain said his understanding of the issue is that whatever the outcome is, the burden has to be borne by the government.

“If it is positive, it would indirectly help banks , which can recognise NPAs and take course to claim dues,” Jain said.

Hiren Ved of Alchemy Capital said that despite all the headwinds in the last one year, banks seem to have come out very well, especially the leading ones.

“The level of credit cost that could hit the system is far lower in terms of what we will now see actually. Most of these banks have provisioned themselves adequately and have raised capital. What could therefore happen is that when you raise additional capital, for you to generate a return on that extra capital will take a little bit longer. The recovery could be prolonged a little bit into the cycle, but the worst is clearly behind us,” Ved said.

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