Coronavirus | Supreme Court directive to RBI on loan repayment moratorium

Court tells Solicitor General that it appears the borrowers have not actually benefitted from RBI gesture

“We direct Reserve Bank of India to ensure the implementation of the circular dated March 27, 2020 in letter and spirit,” the court order read. File

The Supreme Court on Thursday asked Reserve Bank of India (RBI) to ensure that the central bank’s March 27 circular directing banks and financial institutions to provide borrowers a three-month moratorium on loan repayments is implemented in “letter and spirit” amid the COVID-19 pandemic .

Watch | What does the 3-month moratorium on EMIs mean?

A Bench led by Justice N.V. Ramana said the central banker should ensure that its freeze on loan repayments between March 1 and May 31 was not diluted and benefitted the borrowers during these hard times.

“We direct Reserve Bank of India to ensure the implementation of the circular dated March 27, 2020 in letter and spirit,” the court order read.

The court told Solicitor General Tushar Mehta that it appeared that the borrowers had not actually benefitted from the RBI’s gesture.

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However, the Bench, also comprising Justices Sanjay Kishan Kaul and B R Gavai, which took up as many as four PILs on the implementation of the circular, said it was not intervening any further as none of the petitioners was actually an aggrieved party.

On March 27, RBI issued slew of measures to check the financial impact of the lockdown. It gave liberty to banks and financial institutions to allow moratorium in respect of loans outstanding as on March 1, subject to the borrower making such a request. It said the repayment schedule for these loans as well as the residual tenor would be shifted across the board by three months after the moratorium period. Interest on the loans would continue to accrue on the outstanding portion during the moratorium.

Case of NBFCs

Sources in RBI said the court order was a rap on the knuckles of the banks that were not extending the moratorium benefit to many customers, most importantly to the non-banking finance companies (NBFCs), including housing finance companies.

RBI had offered a favourable regulatory framework for banks to extend the loan moratorium by allowing them not to classify the account as a non-performing asset even if the borrower has availed the moratorium.

However, banks were reluctant to extend the moratorium to the NBFCs. As a result, these entities are heading for liquidity crisis as they have to extend such a moratorium to their borrowers but are getting no such benefit from their lenders.

( With inputs from Manojit Saha )