Supreme Court Extends Temporary Respite To Borrowers In Loan Moratorium

In a relief to borrowers, the Supreme Court on Thursday directed that all loan accounts which were not NPA or non-performing asset as on August 31, 2020 shall not be stated as bad until further orders. The ruling applies to even borrowers who defaulted on payments even before the pandemic crisis.

"Accounts not declared NPA as on August 31 shall not be declared NPA till further orders," the apex court bench led by Justice Ashok Bhushan declared in its interim order. Also, at the same time the SC sought clarification from the RBI if it is the banks which are willing to extend relief to borrowers.

"What the centre is saying seems to be for new loans, not existing ones," the bench noted. "What about demand on compound interest in the meantime?."

The SC was hearing several petitions from various stakeholders seeking waiver on interest dues on deferred EMIs under moratorium. Senior advocates Kapil Sibal and Rajiv Dutta requested the SC so as to direct the RBI and centre to waive off the interest accrued on loan repayments under the moratorium. In view of the pandemic, which led to financial disclocation, RBI in March granted moratorium relief for loan repayment for all retail loan accounts until May, which was later extended to August 31, 2020.

Harish Salve counsel to the banks said no loan account shall turn NPA for a period of two months. Also, he reiterated about the restructuring committee being set up which shall look after the concerns of the different sectors.

Solicitor General Tushar Mehta representing the government and RBI defended their view and said the moratorium was granted so as to permit deferment in EMI repayment such that businesses already suffering financial crisis amid the pandemic can better manage their working capital. He further added idea behind the moratorium relief was not to waive interest and said the whole issue demand a holistic view and not a knee-jerk reaction.

"We have to realise that banks form a substantial part of the economic stability of the country. We can do nothing ab .economic revival without looking after the interest of the banks also. So banks is also a part of the revival framework conceived by the country as a financial policy," Mehta argued.

The apex court will continue hearing the matter on September 10.

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