Updated: September 4, 2020 7:46:49 am
The court was hearing a request for exemption from interest applied to term loans during the six-month moratorium (March-August) on repayment allowed by the central bank.
Taking note of borrowers’ concerns, the Supreme Court ruled Thursday that accounts that were not declared Asset Defaulted (ANP) until August 31 will not be declared so until further orders.
A bank of Justices Ashok Bhushan, R Subhash Reddy and MR Shah took into record the presentation made by Lead Counsel Harish Salve, appearing for the Banking Association of India, that the accounts would not become NPAs for at least two months.
“In view of (this),” said the Bank in its order, “accounts that were not declared NPA until 08/31/2020 will not be declared NPA until new orders are submitted.”
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The court postponed the hearing until September 10 to allow Attorney General Tushar Mehta to take instructions and let him know what further steps the government and the Reserve Bank of India intended to take to address the issues facing borrowers in various sectors. due to the Covid-19 situation.
The court was hearing a request for exemption from interest applied to term loans during the six-month moratorium (March-August) on repayment allowed by the central bank.
The Finance Ministry has told the court that a waiver would not be sound economic policy and that a more durable long-term debt restructuring solution would be best for both the borrowers and the economic health of the country.
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The government has also said that since borrowers come from multiple categories and subcategories, with their specific problems, there can be no one-size-fits-all solution, and that the RBI had decided that banks should take various steps to provide relief.
However, the Bank said Thursday that the RBI could not allow the banks to make all the decisions. “But you can’t leave everything to individual banks,” Judge Reddy observed.
The petitioners’ attorney argued that allowing banks to charge interest on interest would result in a situation where the borrower would end up paying “compound interest.”
Judge Reddy agreed: “Moratorium and criminal interest cannot go together. RBI will have to clarify. “
SG Mehta said that although the pandemic had affected everyone, the situation faced by each sector was different and some, like the pharmacist, had won. He warned that while those facing distress should benefit, defaulters should not be allowed to take advantage.
It lessened fears that accounts would be declared NPA automatically in the event of default after August 31. Although an account normally becomes NPA if payment is not made for 90 days, the moratorium period is excluded given the current situation, presented.
The SG said that the government had taken measures for the reactivation of various sectors in conjunction with the RBI. A government-constituted committee of experts would draw up specific guidelines for the sector on September 6, he said.
Salve said that banks can develop their resolution plans and that certain sectors such as electricity could develop their own standards. The common man’s problems were different from those of business and needed to be approached differently, he said.
If the type of borrowers and the type of loan are identified, then specific relief can be provided, Salve said.
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