- State Bank of India (SBI), Axis Bank, HDFC Bank and other banking stocks are treading on the side of caution ahead of the
Supreme Court ’s hearing on moratoriums loans today. - ICICI Bank is the worst hit with its share price dipping by more than 2%.
- The Supreme Court is yet to pass a verdict on whether the moratorium should be extended and if interest on interest should be charged.
However, since then, the hearing has been postponed twice to give the government,
Banking stocks are cautious in trade ahead of the hearing, most of them in the red.
According to Solicitor General Tushar Mehta, a committee had been formed at the ‘highest levels’ to decide on moratorium extension, interest during the moratorium, interest on interest, and other issues related to the moratorium period.
The RBI’s stance on loan moratorium
In its affidavit, the RBI told the Supreme Court that extending the moratorium beyond six months will impact overall credit discipline and have a ‘debilitating impact’ on the credit creation process.
On the issue of compound interest, the RBI asserted that waiver of the same would result in ‘significant economic costs’ for banks to absorb. The larger ripple effect may lead to implications for borrowers and undermine broader financial stability.
Central government’s take on loan moratorium
The central government asserted that it would waive compound interest (interest on interest) during the moratorium period for MSMEs and personal loans up to ₹2 crore in its affidavit filed ahead of the last hearing.
However, Senior Advocate C. Aryama Sundaram argued that the real estate sector is completely left out of the scope.
The bench was also not pleased, highlighting that the central government’s affidavit did not provide the necessary details regarding the questions asked by the court earlier.
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