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Banks seem to have got a partial reprieve for now, with the Supreme Court adjourning the hearing on the loan moratorium to October 5 — as an unfavourable verdict could have impacted their operating profits and Q2 results.
Most companies are working on their results for the quarter ended September 30, 2020, and the end of the loan moratorium and debt restructuring is expected to have some impact even as lending growth has remained muted.
Aditya Acharekar, Associate Director, CARE Ratings, said: “Depending on the Supreme Court verdict, banks may have to take a hit but it would depend on how it gets implemented.”
The Centre has indicated to the SC that it is at an advanced stage in reaching a decision on the interest in the loan moratorium period. Analysts had said an unfavourable verdict would have impacted banks and financial institutions by about ₹8,000 crore.
‘Low cumulative burden’
“Waiving interest (on interest) during moratorium period (if Supreme Court outcome is unfavourable) will barely lead to a cumulative burden of ₹7,500 crore to ₹8,000 crore for the industry — including about ₹2,000 crore for private banks and small finance banks, about ₹2,000 crore for public sector banks and ₹3,500 crore for NBFCs and housing finance companies,” ICICI Securities said in a recent report.
“This would mean a drag of a meagre seven basis points on RoAs and an impact of less than 4 per cent of operating profit of 2019-20,” it added.
“Growth will continue to be subdued as banks will focus on collections and Covid-related uncertainties still remain. With capital buffers not very high, public sector banks will have to conserve capital. There will be some stress with the moratorium ending and restructuring allowed but it may not be visible right away in NPA numbers, although SMA numbers may show a rise. Indications are that 5-7 per cent of the portfolio would go for restructuring,” added Acharekar.
A report by BNP Paribas noted that the restructured book for banks should not be a concern and could be in mid-to-low single digits as a percentage of total advances for large private banks.
Faced with continued economic uncertainty, it is expected that many banks will also continue to provide for Covid-19 related provisions in the second quarter as well, keeping provisions further elevated.
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