Relief rally in bank stocks continues as Supreme Court defers loan moratorium hearing to October 13
- Bank stocks jumped by as much as 5% during morning trade on Monday and continue to rally after the Supreme Court deferred its verdict on the loan moratorium case by another week.
- It has given the Reserve Bank of India (RBI), the Central Government and other stakeholders this time to file any additional affidavits.
- This comes after the government submitted its affidavit to the Supreme Court that moratorium loans of over ₹2 crore should be charged compound internet one day ahead of the hearing.
Private banks like IndusInd Bank and ICICI Bank were already optimistic and leading the stock market rally after the central government agreed to waive off interest on loans up to ₹2 crore. IndusInd Bank saw its share price jump by more than 5% ahead of the hearing.
Source: Share price on BSE as of of 9:40am
|Bank||% change in share price|
In its affidavit to the Supreme Court, the Central Government stated it will not charge compound interest (interest on interest) for loans under ₹2 crore during the six-month moratorium period. “The government has decided to continue to hand-hold small borrowers,” said the document.
This includes MSME loans, education, housing, consumer durable, credit card, auto, personal and consumption loans — all up to ₹2 crore.
The affidavit argues that a complete waiver of loans will result in a loss of ₹6 crore for Indian banks. “It would wipe out the substantial and major part of the banks’ net worth, rendering most of them unavailable,” it says, highlighting that even for India’s largest bank, the State Bank of India (SBI), a waiver would wipe out more than 50% of the wealth that the bank has accumulated over the last 65 years of its existence.
The moratorium wasn’t a ‘waiver’
The government’s affidavit reasons that the six-month moratorium wasn’t a ‘waiver’. It was merely a ‘deferment’. It argues that most of the customers knew that, which is why more than half did not opt for the moratorium to begin with.
It also highlighted the option of restructuring. The RBI has already laid out the terms and conditions for it. This will prevent accounts from being declared non-performing assets (NPAs).
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