The central bank also said the ruling undermines its regulatory mandate.
In March, the RBI had allowed a three-month moratorium on the equivalent monthly installments (EMI) of term loans and other loans that mature between March 1 and May 31. The moratorium was subsequently extended until August 31.
The superior court, in a provisional ruling on September 3, had ordered a suspension of the classification of NPAs, if they were not declared as such before August 31, until new orders were issued.
Meanwhile, the Center, in response to a series of petitions, filed an affidavit in the superior court ruling out further relief measures under the loan default scheme.
He said that a balanced view of the interests of depositors, borrowers, real estate entities and banks, as well as the financial stability and economic growth of the country, has been taken into account when deciding its policy.
In response to a request to waive interest / interest on interest, the government said that such a move will entail significant economic costs that banks cannot absorb without a serious dent in their finances, which, in turn, will have huge implications for depositors and broader financial stability.
The Center said it had filed an affidavit on October 2 in which it had informed the higher court of its decision to bear the cost of “ interest on interest ” for MSMEs and personal loans up to ₹2 crore.
In response to a request to extend the moratorium beyond August 31, the government said the moratorium was part of an immediate regulatory response and that any extension “may result in vitiating overall credit discipline, which will have a debilitating impact. in the credit process. creation in the economy “.
The Center said it had announced on Aug. 6 a covid-related stress resolution framework that allows lenders and borrowers to resolve issues based on industry-specific requirements. The framework, among other things, allows for the extension of the moratorium for a maximum of two years, the government said.
On Friday, the supreme court had asked the Center and the RBI to record the report of a panel of experts led by the former director of the New Development Bank and ICICI Bank, KV Kamath.
The panel was constituted by RBI to recommend the financial parameters to be considered for a one-time restructuring of loans affected by the pandemic. The panel had recommended financial ratios for 26 sectors, including energy, construction and auto manufacturing, that banks could consider.
According to the report presented to the RBI last month, lenders should consider five parameters: total outstanding liabilities / adjusted tangible equity, total debt / Ebitda, current ratio, debt service coverage ratio, and average debt service coverage ratio. Debt.
“Whenever the committee considered that certain proportions were not relevant or not applicable based on the specific nature of the sector, the committee recommended a different treatment; for example, aviation, auto manufacturing, highways, and wholesaling, which has also been accepted by RBI, “the affidavit reads.
Contrary to what the petitioner has said, the Kamath panel has given enough leeway to accommodate the impact of the covid while stipulating specific proportions, the Center added.
“The prescribed proportions are intended as floors or ceilings, as the case may be, but resolution plans must take into account the borrower’s pre-covid operational and financial performance and the impact of covid on their operational and financial performance at the time of termination of the loan. resolution plan, to evaluate the cash flows in the following years, while stipulating the appropriate ratios in each case ”, says the affidavit.
On requesting that all accounts be eligible under the framework, the Center said that its decision to allow only those accounts classified as ‘Standard’ but that were not past due for more than 30 days as of March 1, 2020 “is based on an intelligible difference, and it has a rational nexus. “
The Center said it would be wrong to equate accounts that pay on time with accounts that pay with considerable delay.
“The liquidity measures announced by the RBI have ensured a liquidity of the order of ₹Rs 11.1 crore, or 5.5% of GDP, “the government said, adding:” The pass-through from the policy rate to bank loan rates has further improved, with the weighted average loan rate (WALR) on bank-sanctioned new rupee loans that were basis points in February 2019-August 2020, of which 91 basis points were transmitted between March and August 2020. As of August 2020, the WALR for the banking sector on all sanctioned new rupee loans was 8.35%. “
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