SC verdict on loan moratorium: Bank NPAs to rise Rs 1.3 lakh crore

The gross non-performing assets of banks will rise by Rs 1.3 lakh crore due to the Supreme Court's refusal to extend the six-month loan moratorium offered by the Reserve Bank of India in the wake of COVID-19 pandemic.

On Tuesday, the Supreme Court turned down pleas from various trade associations and corporate bodies seeking an extension of the loan moratorium. However, the apex court ruled that there will not be any interest on interest or penal interest on any amount during the moratorium.

As per rating agency ICRA's estimates, on a proforma basis, gross non-performing assets (GNPA) of banks stood at Rs 8.7 lakh crore or 8.3 per cent of advances as against the reported GNPA of Rs 7.4 lakh crore as of December 31, 2020, The Times of India reported. The net non-performing assets (NNPA) stood at Rs 2.7 lakh crore or 2.7 per cent of advances as against the reported NNPA of Rs 1.7 lakh crore as of December 31, 2020 for all banks.

"Hence, in absence of standstill by Hon'ble Supreme Court, the gross NPAs for the banks would have been higher by Rs 1.3 lakh crore and net NPAs would have been higher by Rs 1 lakh crore,"  Anil Gupta, Vice President for financial sector ratings at ICRA, said.

The apex court's decision to announce waiver of interest on interest will likely result in an additional outgo of Rs 7,000-7,500 crore to borrowers, Gupta said.

Also read: SC refuses to extend RBI loan moratorium, waive interest entirely

The Centre had earlier announced compound interest waiver for borrowers with up to Rs 2 crore borrowings, and it was estimated to cost about Rs 6,500 crore to the exchequer. Since the government paid for the waiver for small borrowers, it is also likely to pay for large borrowers, Gupta said.

The RBI had on March 27 issued a circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, in view of the coronavirus pandemic. The moratorium was later extended till August 31, 2020.

The central bank had also allowed lenders to undertake a one-time loan restructuring without classifying them as NPAs to ease financial stress amidst the pandemic.

The Supreme Court had ruled in September 2020 that loans not classified as NPAs till August 31, 2020 shall not be put under this category till further orders.

Also read: MHA issues fresh COVID-19 guidelines; tells states to step up vaccination, follow 'Test-Track-Treat' protocol