(This story originally appeared in on Aug 27, 2020)NEW DELHI: The Supreme Court’s stand on loan moratorium has taken the government and RBI by surprise, as they had backed interest payment on loans during the period to ensure that banks remain financially viable.
RBI and government’s argument is that banks survive on deposits, which are then used to lend to individuals and companies. And, depositors get interest based on the interest that banks earn on loans.
With RBI cutting interest rates, depositors, especially senior citizens, are complaining of their incomes getting hit. By stopping interest on loans where installments are delayed, the problem will only be compounded. In any case, housing finance companies have argued that their income has been hit due to the moratorium.
A large gap between the interest outgo and interest income will impact the profitability of banks and NBFCs, resulting in shareholders having to pump in more capital at a time when they are raising funds in anticipation of higher bad debt in coming months.
While deciding against extending the loan moratorium beyond August, RBI had also announced a one-time restructuring window for individual and corporate loans. In case of home loans, banks are expected to provide a tenure extension of up to two years with a one-year moratorium on repayment.
The move is seen as a special window for those whose income has been hit and are unable to service even their home loan liability.
So far, around 25-30% of the borrowers are seen to have claimed moratorium on their loans and banks are likely to be selective in granting a restructuring facility, although RBI has asked them to be ready with a list of potential beneficiaries based on the credit history and income in recent weeks.
With just five days for the moratorium to end, bankers as well as government, RBI brass are keeping a close watch on the proceedings in the Supreme Court.