moratorium on loans: the resumption of bank shares in danger while SC will hear tomorrow the question of the interest exemption


NEW DELHI: The Supreme Court would hear on Wednesday the issue of interest charged by lenders on deferred IMEs on term loans following the lifting of the moratorium.

Analysts who follow the banking industry have said that the recent rally in these stocks was in part due to a reduction in loan portfolios under Moratorium 2. Any verdict of waiving interest or even interest on interest payments under the loan moratorium would not be appreciated by Dalal Street, they said. , warning investors that recent gains in bank stocks could be at risk.

Gajender Sharma, one of the petitioners, requested an instruction to waive interest on loan repayments during the moratorium. Vishal Tiwari, the other petitioner, in his plea to SC asked for instructions to extend the moratorium period to help borrowers defer their EMI contributions on term loans. Moratorium 2 ended on August 31.

The Finance Department, in an affidavit, told the Supreme Court on Tuesday that a waiver of interest on interest during the moratorium would go against basic canons of finance. He said the RBI circular of August 6 allowed lenders to authorize a moratorium of up to two years.

Umesh Mehta of Samco Securities said bank stocks currently do not reflect any negative results in pending cases over the moratorium, as suggested by the 90% F&O renewal in derivative contracts of some of the private lenders.

“Already loaded with huge NPAs, if the banks were to bear the burden of interest on the interest themselves, this would be a very negative development and could endanger the recent takeover of bank names,” he said.

The RBI’s position is clear: it does not want the banking industry to accumulate APNs. It was all evident when RBI Governor Shaktikanta Das recently asked banks to proactively raise capital. Many banks such as ICICI Bank, Axis Bank, and Kotak Mahindra Bank have recently announced QIPs, while lenders such as Bandhan and HDFC Bank, among others, have also raised capital through market selling. secondary.

Mehta of Samco Securities said some pockets affected by Covid, such as MSMEs, could get relief from the RBI moratorium, but a concession on interest payments could be difficult.

The finance ministry said borrowers, who fear that they will default on September 1 and soon become an NPA, could continue to avail themselves of the moratorium under the resolution plan implemented under the circular. -above.

“The legacy of this moratorium and the impact that we are going to see on bank balance sheets will still be felt. The point is that the economy is recovering at a much slower pace and there is no growth. The banks are going to see this intermittent nervousness. Whenever there is some kind of broader nervousness, they will be the preferred places where investors look to sell, ”said Nitin Raheja, co-founder of AQF Advisors .

Among the major banks, shares of Axis Bank climbed 74% from the March 25 low at Rs 285. HDFC Bank recovered 50% from its March 24 low at Rs 738.90. ICICI Bank is up 47% from its March 24 low at Rs 269. SBI also gained 42% from its March 22 low at Rs 149.55.

Mehta of Samco Securities said: “Bank stocks in the United States are still down 50% despite the recent rally. Legendary investor Warren Buffett has been seen reducing his stake in Wells Fargo. This means bank stocks won’t are preferred nowhere. If bad news arrives on the regulatory side, it won’t take long for domestic bank stocks to erode recent gains. ”

The argument for waiving interest is that deferring interest payments would not solve the problem for borrowers, as the accrued interest accumulated at the end of the moratorium period. The counter-argument says that it is not possible for banks to pay interest to their depositors unless borrowers pay interest on their loans.

“There should only be a bit of a hike in financials from now on until we have more clarity on the impact on bank balance sheets. We see momentum, but we need to see how long it can last. Financials are still the biggest link in the economy and the market as a whole, “said Sandip Sabharwal, asksandipsabharwal.com.

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