SC gives ‘one last opportunity’ to centre to decide on loan moratorium plan

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The Supreme Court Thursday extended its interim order that no account is to be declared NPA till further orders after the Centre said an expert panel has been set up to look into the issue of interest being charged by banks on instalments deferred during the moratorium period due to the COVID-19 pandemic.

The top court granted two weeks to the Centre and Reserve Bank of India (RBI) to file the affidavit and place before it the decisions taken in this regard.

A bench of Justices Ashok Bhushan, R Subhash Reddy and M R Shah posted the matter for further hearing on September 28 and said that the court expects that the government and RBI actively consider all the issues.

The bench clarified that it was giving one last opportunity and thereafter the matter will not be adjourned.

The top court was hearing a batch of pleas which have raised the issue of interest being charged on instalments which were deferred during the moratorium period due to the COVID-19 pandemic.

Solicitor General Tushar Mehta, appearing for the Centre said that the government at the highest level is considering all issues raised in the batch of petitions and within two weeks, appropriate decision will be taken with regard to the problems faced by different sectors during the pandemic.

He said that everything has to be considered holistically and the government is considering all the sectors for which an expert panel has been constituted.

The bench told Mehta that concrete decisions should be taken with clarity so that the matter does not get adjourned again.

Mehta said that with regard to concerns expressed by the petitioners in last hearing, two to three rounds of meeting have taken place and issues are being examined.

He sought deferment of the hearing by two weeks saying that considered decisions have to be taken in consultation with all stakeholders including banks which play a vital role in the issues at hand.

Senior advocate Harish Salve, appearing for banks’ association said that norms and guidelines have to be issued with regard to individual borrowers.

The bench asked who will formulate these norms to which Salve replied that the Ministry of Finance will do as it has been done at the level of RBI.

Mehta said that it is being done at a level higher than the RBI and whatever will be there it would be comprehensive.

Salve pointed out that for the power sector, the states will have to be taken on board as entire loans cannot be put on banks.

Senior advocate Kapil Sibal, appearing for CREDAI said that current restructuring of loans won’t provide relief to 95 per cent of borrowers and pointed that downgrading of borrowers is continuing which must be protected.

He sought extension of loan moratorium, stay on downgrading and interest of levy.

Senior advocate Rajeev Dutta, appearing for borrowers said that banks are charging compound interest while now the loans are being restructured which should be done earlier.

Contending that the government should make its stand clear on charging of interest on interest by banks, he said that lakhs of people are in hospitals and many have lost their sources of income.

Senior advocate V Giri, appearing for RBI said that downgrading is being done on an individual basis and as per existing norms. He sought deferment of hearing by two weeks saying all issues are under active consideration at the highest level.

Salve told the court that now the matter has become adversarial and urged the court to implead banks association in all the petitions on the issue.

The bench said that it was not the question of adversarial as with respect to interest it is yet to take a decision but with regard to charging of interest on interest by banks the court is inclined to pass orders.

Salve pointed that the entire banking structure works on compound interest and that is what is being currently done.

The bench then told Mehta that it was adjourning the matter but everything including the issues raised in the hearing should be considered.

On September 3, in a relief to stressed borrowers who are facing hardship due to impact of COVID-19 pandemic, the top court had said that accounts which were not declared as non-performing assets till August 31 this year, shall not be declared NPA till further orders.

The pleas filed in the apex court have raised issue pertaining to validity of March 27 circular of the RBI which allowed lending institutions to grant moratorium on payment of instalments of term loans falling due between March 1, 2020 and May 31 this year due to the pandemic. Later, the period of moratorium was extended till August 31.

The Centre had recently told the apex court that waiver of interest on deferred EMIs during the moratorium period would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule.

RBI has however come out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers, the Centre had informed the top court.

Borrowers and various bodies representing different sectors had earlier assailed before the apex court the charging of “penal’ interest on deferred EMI payments by banks under the moratorium scheme during the pandemic.