The country’s banking regulator, the Reserve Bank of India (RBI), has filed a new affidavit in the Supreme Court in the case of the loan moratorium.
In the affidavit, the Reserve Bank of India (RBI) has said that it is not possible to give further relief to the sector affected by the coronavirus pandemic. The banking regulator has also said that it is not possible to extend the moratorium period beyond six months.
The RBI said that a long moratorium exceeding six months “may result in vitiating overall credit discipline, which will have a debilitating impact on the credit creation process in the economy.” The RBI also said that the measure may “increase the risks of delinquency after the resumption of scheduled payments” and “exacerbate repayment pressures on borrowers.”
On Monday, the high court had told the government that its response did not contain the “necessary details” and asked the Center and the RBI to record the recommendations of the KV Kamath committee on debt restructuring in light of the stress. related to Covid-19 in various sectors. as well as the notifications and circulars issued so far on the loan moratorium.
The high court order came after the finance ministry filed an affidavit on Oct. 2 saying it had decided to waive compound interest (interest on interest) charged on loans of up to Rs 2 million for a moratorium period. of six months announced due to the pandemic. both from individual borrowers and from small and medium industries.
At the request of various other sectors such as real estate, the government told the Supreme Court that it is not possible to grant additional relief beyond what has already been announced.
Regarding sector-specific relays, the RBI said, the real estate and energy sectors were already stressed before the pandemic due to several other factors. He said that “the tribulations of the real sector cannot be solved through banking regulations” as the RBI banking regulations cannot substitute for repairing the structural problems of the real sector.
Even before the demand of certain petitioners seeking resolution of their overdue loans beyond 30 days as of March 1, 2020, the RBI said: “An account that was affected by a pandemic and that had a financial A pre-existing account has a different risk profile compared to a pre-existing stress-free account and treating both borrowers equally would be a serious suspension of financial sensitivity. “
The other important issue raised by various petitioners against moratorium circulars was that they are not automatically available to all borrowers, but rather are at the discretion of the lenders. The RBI said: “In this context, it is argued that the Reserve Bank has only provided an enabling mechanism for lenders to allow the moratorium, without it being considered a restructuring of the terms of the loan agreement for regulatory purposes.” .
The RBI’s response came after the Supreme Court asked the government to consider providing relief to other classes of borrowers. The court is expected to address these issues next week.
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