The Supreme Court’s decision in the loan moratorium case to reject pleas seeking complete waiver of interest during moratorium period has been widely hailed by industry and the legal fraternity, although public sector banks are not entirely enthused about it.

The apex court has also now denied requests seeking extension of moratorium period.

Reacting to the SC ruling, Sanjay Tibrewala, CEO, Phoenix ARC, said: “Supreme Court decision is a welcome one. Complete waiver of interest during the moratorium would have badly hurt the balance sheet of lenders and today’s SC decision was right in denying that. The lenders can now recognise their NPAs and start taking appropriate corrective action for recoveries.”

No compound interest on loan, irrespective of amount, during moratorium, rules SC

Eshwar Karra, CEO-Kotak Special Situations Fund, Kotak Investment Advisors, said, “The SC verdict will throw up a lot of opportunities for special situation funds. A lot of leveraged companies who have asset:liability mismatch will need to re-tenure their existing loans to match their cash flows. Our $1-billion KSSF fund has the flexibility to give customised solutions for such situations.” However, banks will have to take a hit with the SC ruling that the benefit of no interest on interest be extended to all borrowers and not only those who sought moratorium, said a former chief executive of a public sector bank.

Supreme Court verdict: Additional relief of about ₹7,000 crore may have to be given to borrowers

‘Balanced decision’

Anshuman Panwar, Co-Founder, Creditas Solutions, a holistic digital-based debt collection platform, said, “It is a great and balanced decision by the Supreme Court. It ensures the payment culture of retail borrowers remains intact while at the same time providing them relief from the burden of additional interest.”

Siddharth Srivastava, Partner, Khaitan & Co, feels it is a “Very balanced view by apex court. Charging interest on interest would have eventually diluted the relief granted by RBI to ailing borrowers and they may perhaps be worse off than pre-Covid stage. The decision therefore should be welcomed by the borrowers.

Loan moratorium: SC orders full waiver of interest on interest

The apex court has also taken a very prudent view by not granting a complete waiver of interest, which would have severely impacted the banking system. All in all, it is a win-win situation for all the stakeholders involved”.

Jinni Sinha, Partner, IndusLaw, a law firm, said this judgement by the Supreme Court will help corporates, in particular SMEs and MSMEs who were impacted by the pandemic. Waiver of interest on interest will certainly boost these corporates in increasing cash flows and help them meet their operating expenses.

The Supreme Court has also directed to refund the interest already collected, this will have an impact on the balance sheet of the lenders. However, the magnitude of this impact will have to be seen, Sinha added.

‘Shot in the arm’

Jay Parikh, Partner, L&L Partners, said the refusal to extend moratorium and the vacation of the stay on the classification of NPAs by banks is a shot in the arm for the banking sector. On the other hand, the effect of waiver of interest on interest and compound interest will have to be seen, given banks may have declared them as income. On balance, the SC has effectively put to rest the discussions around the moratorium and should provide a lot of clarity to banks, going forward, Parikh said.

Meanwhile, on the SC ruling on NPA standstill issue, Karan Mitroo, Partner, L&L Partners, said the decision of the Supreme Court to vacate the stay on declaration of NPAs will now enable banks to take actions on defaulting borrowers, which will also boost recovery. This will also provide a clearer picture with respect to balance sheets of the banks.