Loan moratorium scheme: Extension of time given to borrowers not viable, RBI tells Supreme Court
The central bank said it had already issued a framework on August 6 with the aim of facilitating the revival of real sector activities and helping borrowers.
The Reserve Bank of India on Wednesday informed the Supreme Court that it was not viable to extend the loan moratorium period, The Hindu reported.
A three-judge bench led by Justice Ashok Bhushan continued hearing pleas against the Reserve Bank of India’s decision to charge interest on term loans during the moratorium period announced due to the coronavirus pandemic. The pleas have been filed by industry, real estate and power sectors.
Advocate V Giri, appearing for the central bank, referred to clause 3 of its August 6 circular for “resolution framework for Covid-19-related stress”, a debt resolution plan for corporate and personal loans. He said that lending institutions, guided by their respective board-approved policy, would prepare viable resolution plans for eligible borrowers. But lenders would ensure that this resolution was provided only to the borrowers stressed on account of the pandemic, Giri added.
The bank said borrowers needed to “only invoke their interest” in the benefits enumerated under the circular. “So, borrowers have to only come and say that they want to take the benefit of the RBI circular of August 6,” the bench asked.
Solicitor General Tushar Mehta, representing the Centre, suggested that the central bank should once again clarify the contents of the circular for the benefit of borrowers.
The RBI told the court it had issued the framework of August 6 with the aim of facilitating the revival of real sector activities and mitigating the impact on the ultimate borrowers, which were financially affected due to Covid-19.
The court scheduled the case for further hearing on December 14.
On Tuesday, the Supreme Court had said that it would not pass any order that may risk the economy going “haywire”.
This came after Solicitor General Mehta told the court that a blanket waiver of loans on debts incurred by all borrowers would deeply impact the economy as it would mean forgoing an estimated over Rs 6 lakh crore. “If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival”, he had submitted.
To this, Justice Bhushan had responded: “Of course the court will not pass an order which will lead to the economy going haywire. We are conscious of the fact,” according to Live Law.
Loan moratorium
Considering the economic impact of the lockdown imposed to fight the coronavirus crisis, the Reserve Bank of India had on March 27 said that banks would be allowed to grant a moratorium of three months on payment of all installments due between March 1 and May 31. On May 23, it said that banks can extend the moratorium until August 31. However, the RBI had said it would be imprudent to go for a forced waiver of interest, risking the financial viability of the banks it was mandated to regulate and putting the interests of the depositors in jeopardy.
In August, the Centre said the loan moratorium scheme can be extended by a period of two years after the top court had criticised the Centre for “hiding behind the RBI” without making its stand clear on the loan moratorium.
On October 14, the top court refused to allow the Centre a month’s time to implement the interest waiver on loans of up to Rs 2 crore. It directed that the execution of waiver should be done by November 2. The government claimed that the deadline for providing relief to borrowers was November 15.
The Centre had submitted an affidavit to the court on October 9, in which it said that it was not possible to provide more relief to different sectors affected by the coronavirus crisis. The Centre had even then said that “courts should not interfere in fiscal policy”. The Reserve Bank of India had also told the Supreme Court that it was not possible to extend the moratorium beyond six months.
On November 19, the Centre had again appealed to the Supreme Court not to intervene and give more relief to borrowers as the government was already dealing with it.