Finance Minister Nirmala Sitharaman and the Supreme Court separately offered much-needed respite to bank borrowers on Thursday, intervening to prevent stress loans from damaging their creditworthiness, two days after the expiration of a moratorium on repayments. of loans needed by the coronavirus disease (COVID-19 pandemic.
The superior court approved an interim order that loan accounts that had not been declared delinquent as of August 31 will not be classified as delinquent until further notice. And at a review meeting to assess banks’ readiness to implement a post-Covid-19 loan resolution framework, Sitharaman urged lenders to support corporate and individual borrowers who may be under stress, the Ministry of Finance said. Finance in a statement.
Sitharaman asked banks to implement loan resolution plans by September, the ministry added. “During her interaction, the finance minister focused on lenders immediately establishing a board-approved policy for resolution, identifying eligible borrowers and communicating with them.”
“Lenders assured {Sitharaman} that they are ready with their resolution policies, have begun the process of identifying and contacting eligible borrowers and that they will meet the deadlines stipulated by the Reserve Bank of India,” the ministry said. .
This videoconference meeting took place ahead of the recommendations of a panel headed by former ICICI Bank director KV Kamath on the eligibility parameters for restructuring loans affected by the Covid-19 crisis. In August, the Governor of the Reserve Bank of India (RBI) Shaktikanta Das said that a resolution framework for all stressed accounts related to Covid-19 will be finalized on September 6.
The restructuring of some loans will support the economic recovery and help borrowers to overcome the crisis. India’s economic growth contracted by an unprecedented 23.9% in the three months ending in June, as businesses suspended investments and households cut spending during the full 68-day lockdown that took place from June. March 25th. Business activity has not yet returned to pandemic levels.
Thursday’s intervention by the Supreme Court and the finance minister should reassure companies, many of which had to stop production and close their businesses, and individuals, many of whom suffered job losses or cut their jobs. salary, that your accounts will not immediately be classified as bad loans after the August 31 expiration of the six-month moratorium on loan repayments. More importantly, analysts noted, they can borrow more.
The US investment bank Jefferies estimates that borrowers representing 31% of outstanding loans accepted the offer of a moratorium, and this was reduced to around 18% at the end of June, as companies gradually reopened and some gave up. Note that postponing refunds could end up being more expensive. Indian banks entered the pandemic laden with bad loans estimated at $ 140 billion.
The higher court’s ruling came after it heard a series of petitions seeking an interest waiver on RBI’s loan moratorium. After the pandemic, the central bank allowed lenders to grant a loan moratorium for three months of equivalent monthly installments, maturing between March 1 and May 31. The RBI subsequently extended this for a further three months until August 31.
The provisional order was approved by a court headed by Judge Ashok Bhushan and composed of Judges R Subhash Reddy and MR Shah ..
Attorney General Tushar Mehta told the court: “The idea of the moratorium was to defer payment to ease the burden caused by Covid-19 and the closure so that companies can manage working capital. The idea was not to give up interest. The effort is that those who are affected by Covid and face difficulties obtain the benefit and those who are in default cannot benefit. “
“The question is about the compound interest claims in the meantime. The moratorium and criminal interests cannot go together. RBI will have to clarify, ”Judge Reddy said.
(Mint and Agencies contributed to this story)
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