Moratorium Continues Virtually as SC Stays Order to not Announce Non-Payment as NPA

Moratorium Continues Virtually as SC Stays Order to not Announce Non-Payment as NPA

Good News for borrowers seeking EMI relief! The Supreme Court on Thursday has stayed the previous order for banks to not announce non payment post moratorium as default/NPA for two months.  In a way the apex court has virtually extended loan moratorium for borrowers.

Previously the Governor of RBI has also said that the banks can extend moratorium for up to March 2022 as per their board approved policies. RBI has no call in this. Besides RBI has allowed banks to offer a loan restructuring option for 2 years to Personal Loans and Corporate Loans for account holders that are affected severely by COVID 19.

In wake of COVID 19 financial crisis, there are many customers who are still seeking relief on loan repayments. The cash flows of many businesses and individuals are heavily disrupted due to pandemic.

Today the SC was hearing a batch of petitions request to wave off interest accrued during loan moratorium period and extending the Moratorium as financial situation is far from being normal yet.

Also Read: Borrowers Get Relief; SC Bars Banks to Declare Non-Payment as NPA

Highlights:

The SC said that the decision is yet to be taken on waiving off interest accrued during moratorium period, however the apex court has barred banks to debit ‘interest on interest’ as of now.

The SC has offered additional time to Government of India to share their plan and take a holistic and careful decision in this regard.

Further the court added that lenders and government cannot call borrowers seeing EMI relief as adversarial.

A response is desired from Government on interest costs being debited and downgrade of accounts after the moratorium.

SC has provided two weeks to GoI for filing appropriate documents along with their strategy and decision on Covid19 repayment relief for various sectors.

Also in the proceeding today, Solicitor General Tushar Mehta assured to the court that government is in consultation with banks for decision. He asked for two weeks of time, which the SC finally agreed upon.

Senior Advocate Harish Salve for IBA also said that the banks are yet to state restructuring norms and the lenders will not get discretion to set the final norms, which is in contrast to what RBI Governor said earlier.

The IBA’s Advocate Salve said the downgrading of accounts is important as it represents borrowing capacity.

The CREDAI informed to SC that according to the State Bank of India (SBI) only 5 percent of the loans qualify for restructuring post moratorium. The CREDAI spoke for borrowers and also informed that some banks have already started debiting six months’ interest accrued from borrowers’ accounts. It added that banks are downgrading company accounts from from SMA 0 to SMA 1 & to SMA 2 despite RBI’s circular barring lenders to downgrade the status of accounts.

Senior Advocate Mukul Rohatgi for SBI said to SC: Lakhs of crores are due as we are the largest lender. It is important to consider that fraudulent elements will also seek benefits under any relief allowed by SC.

Senior Advocate Rajiv Dutta, who is a petitioner seeking interest waiver relief, said that several banks have sent letters stating that ‘interest on interest’ will be charged. Thus, it is important that government clears their stand at the earlier, he urged in the court

The next hearing is due on September 28, 2020.

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