SBI, HDFC Bank, Axis Bank and other bank stocks tread caution as they wait with bated breath for Supreme Court verdict on moratorium

• 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.
  

The Supreme Court is set to resume its hearing on waiving interest on loans that availed moratorium during the coronavirus pandemic today. The last time around, the bench headed by Justice Ashok Bhushan indicated that it was ‘inclined’ to excuse the ‘interest on interest.’

However, since then, the hearing has been postponed twice to give the government, Reserve Bank of India (RBI) and other stakeholders more time to file their response.

Banking stocks are cautious in trade ahead of the hearing, most of them in the red. ICICI Bank share price is down by as much as 2%, while others remain largely unchanged.

Source: Share price as of 10:10am on BSE

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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