NEW DELHI / MUMBAI (Reuters) – India’s highest court on Tuesday rejected an attempt to extend a six-month moratorium on loan repayments to banks, but ruled that no borrower could be charged additional interest incurred on loans during this period, which ended in August of last year.
The judgment was a relief for banking investors and India’s Nifty PSU banking index, which tracks state-owned banks, rose 3.93% while the Nifty Bank index rose 2.07. % after the verdict.
The Reserve Bank of India (RBI) had allowed banks to offer a repayment moratorium to borrowers for six months from March of last year after a government-imposed COVID-19 lockdown.
However, the borrowers said the additional interest accrued during the moratorium that would be charged after repayments resumed would increase the burden on them.
India’s highest court has rejected requests for an extension of the moratorium and said the government and central bank rather than the judiciary decide economic policy based on expert opinion.
Judge MR Shah said the issues facing borrowers were resolved as part of the actions taken by the RBI and the central government.
But Shah added that the court ruled that “there should be no interest levy on interest.”
Indian banks had hoped that borrowers would not get an additional respite beyond waiving compound interest on loans up to 20 million Indian rupees ($ 276,000) for six months, the charge of interest that the government had agreed to bear to compensate the banks.
The court said, however, that all borrowers, regardless of the amount or category of the loan, should get a waiver and be reimbursed the interest, if it had already been charged, in some form or another by the banks.
“We had estimated that the total impact on all loans could be around 150 billion rupees,” Suresh Ganapathy, research analyst at Macquarie wrote in a note.
The government, if it decides to compensate banks for all categories and sizes of loans as directed by the highest jurisdiction and not just those up to 20 million rupees, would now have to pay 100 billion rupees. additional, he added.
TERMINATION OF PROVISIONAL ASSISTANCE
India’s highest court also lifted an earlier interim stay that had prevented banks from recognizing bad debts.
Indian banks are already grappling with bad debts of more than $ 120 billion and this burden is expected to increase further due to the economic stress caused by the pandemic.
After an initial court case, in September last year, the court ordered banks not to report accounts that were standard at the end of August as non-performing assets, whether for a period of two months or until further notice.
The RBI warned that gross non-performing assets, which represented around 8.5% of total assets in March 2020, could rise to around 15% in a severe stress scenario.
($ 1 = 72.3350 rupees)
Additional reports by Nupur Anand; Editing by Christopher Cushing; Editing by Kenneth Maxwell