Reserve bank of India’s (RBI) decision to extend the time period of loan-moratorium for another three months, although seen as a positive for borrowers, is not so enticing when it comes to the lenders. Reacting to the RBI’s announcements, Bank Nifty tanked 2.7% while the Nifty Financial services index dropped 3.22%.
The extension of moratorium also sent stocks such as State Bank of India, Bajaj Finance, and Mahindra & Mahindra Finance down, as each of them hit their respective 52-week low trading values. All the financial stocks on the S&P BSE Sensex or the NSE Nifty 50 were trading in the red.
“For banks, the extension of moratorium by another three months has two sides. The clarity on asset quality picture of the lenders will now emerge by March 2021 instead of September 2020. There is a risk of moral hazard issue creeping in, as borrowers who have the ability to pay, may even opt for a moratorium,” said Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities.
The loan extension has sent all financials on the S&P BSE Sensex tumbling. SBI fell close to 1% while HDFC Bank went down by 2% and HDFC fell 5% similar to ICICI Bank share price.