Loan moratorium: SC verdict on refund won't hit banks

Yes Securities, the broking and investment arm of Yes Bank, on Wednesday said the Supreme Court directive on loan moratorium due to pandemic has brought the much needed clarity and there will not be any financial impact on the banks as the compound interest waiver is to be reimbursed by the government.

On its verdict on a batch of pleas seeking moratorium extension beyond August 31, 2020, the apex court on Tuesday said it is a policy decision, refusing to interfere with the Centre's and RBI's decision to not extend the loan moratorium beyond the limit.

However, it observed that the benefit of moratorium should go to all set of borrowers irrespective of the loan amount and asked to refund any amount collected as penal interest and compound interest during March-August 2020.

The benefit of moratorium was for loan up to Rs 2 crore by way of deferment of instalment payment in those six months.

The Supreme Court said there was no rationale to restrict such relief to loans up to Rs 2 crore only.

Yes Securities said the verdict and clarity by the SC is positive for lenders.

"There is no financial impact for lenders as the compound interest waiver would be reimbursed by the government," it said in a note.

Clarity about no waiver of the base interest and no extension of the moratorium period is positive for banks and NBFCs, Yes Securities said.

This now allows them to officially tag 90+ dpd (90 plus days past due) accounts as NPLs (from 1st September 2020) and pursue the resolution and recovery process, said the brokerage firm.

According to ratings firm ICRA, the overall impact of the compound interest waiver is estimated at around Rs 13,500-14,000 crore, of which Rs 6,500 crore has already been accounted during March-August while the incremental impact is of Rs 7,000-7,500 crore.

As per ICRA, the gross non-performing loans (NPLs) of the banks could rise by Rs 1.3 lakh crore by December 2020.

In another words, the gross non-performing assets (GNPAs) of the banks could be around Rs 8.7 trillion or 8.3 per cent of gross advances as against the reported GNPA of Rs 7.4 trillion (7.1 per cent of advances) as of December 2020.

Yes Securities said the apex court ruling will improve the collection efficiency of the lenders as the Supreme Court NPL stand-still had impacted repayment discipline of some borrowers.

Forward flows in overdue buckets could get arrested, restraining future credit cost, it added.