The current mood in the Indian market is sombre as investors started to book their profits after six consecutive days of gain. However, The Nifty defended the level of 10,000 as the market recovered significantly off the day's lows.

This is partly due to sentiments that have turned optimistic in June, with the monsoon advancing at an expected rate. IMD expects rainfall to be at 102% of its long-term average. We have already explained the importance of the monsoon for the Indian economy in one of our earlier blogs, referring to it as a real finance minister of India, borrowing the term from ex-FM, Pranab Mukherjee.

RBI vs Supreme court: Battle of the giants leaves bankers baffled:

Financial stocks suffered due to the fear of elevated NPAs after the Supreme Court's observations on interest waiver for loans under the moratorium period.

The Supreme court is hearing public interest litigation (PIL) to check the feasibility of a complete interest waiver on loans that are under moratorium. The PIL has challenged the current arrangement where borrowers, taking moratorium, will have to pay higher interest at a later stage.

The Reserve Bank of India, in its affidavit, expressed its views on the issue, stating that any waiver of interest will hurt banks by as much as Rs 2 lakh crore or 1% of GDP of India.

RBI believes any such move will have "huge consequences" for the stability of the entire financial system. The top court has further sought a reply from the Finance Ministry on the issue.

Key takeaways

RBI has already sounded the alarm bell on the complete interest waiver. Uday Kotak believes that any forced waiver could impact a bank's ability to serve its depositors. His warning should not be ignored!

Common sense says, if an interest waiver is granted on loans, more borrowers will opt for moratorium out of convenience rather than out of necessity. Any such waiver will also amount to gross injustice to honest borrowers who have continued to pay their interest in these difficult times.

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