Effect of Debt Suspension on the Financials of Banks: Evidence from India

To curb the negative effect of recent disruptions, the government of India has declared a nationwide lockdown strategy where only essential work is carried out. This bears a severe financial toll laterally with the health disaster. Several individuals have lost their jobs and are struggling to pay off their monthly loan installments. This called for the need for a moratorium on credit. The present paper highlights the impact of a debt moratorium on Indian commercial banks because of the pandemic. It gives a brief commentary on the financial health of banks affected by the stated strategy. A broad-based exploration of the database associated to a debt moratorium on commercial banks during the pandemic in India has been undertaken. Further, a short review has been undertaken on the extracted data through research papers, articles, and reports. The result revealed that though the banks will be benefited from the increased EMI on loans because of the moratorium only if people can repay, that seems highly unlikely due to the crisis. It will further damage the asset quality, and capital requirements and deteriorate the bank’s profitability in the long run.