Relief for borrowers in moratorium case

Don’t declare loan accounts as NPA till further orders, Supreme Court tells banks.

September 03, 2020 08:34 pm | Updated 11:55 pm IST - NEW DELHI

The Supreme Court on Thursday directed banks that loan accounts on the clear till the expiry of the moratorium on August 31 should not be declared as non-performing assets (NPAs) till further orders.

Also read: Loan moratorium ‘extendable to two years’, says Solicitor General in Supreme Court

A Bench led by Justice Ashok Bhushan spelt relief for borrowers struggling to gain their feet amid a pandemic with its one-liner that “accounts which were not declared NPA till August 31, 2020 shall not be declared NPA till further orders”.

The direction was triggered by an assurance from senior advocate Harish Salve, on behalf of the bankers, that “no account shall become NPA atleast for a period of two months”.

The order was passed amidst apprehensions raised by individual borrowers and representatives of various commerical sectors on whether their loans would be declared NPAs on September 1, the very next day after the expiry of the moratorium.

Also read: Loan moratorium scheme | Supreme Court hits out at Centre

The court is examining the question whether compound interest (interest on interest) should be charged on loans deferred during the moratorium period. The Bench is also examining the powers of the Centre and the National Disaster Management Authority to provide relief to borrowers reeling under the financial effects of the pandemic .

Borrowers’ demand

Borrowers are seeking a full waiver of interest chargeable during the moratorium.

Solicitor General Tushar Mehta, for the Centre and RBI, submitted that the impact of the pandemic was varied for each sector. Some like pharma have fared well during the lockdown.

“The idea of moratorium was to defer repayment to ease the burden caused by COVID-19 and lockdown so that businesses can manage working capital. The idea was not to waive interest”, Mr. Mehta said.

Also read: No benefit from RBI’s loan moratorium scheme, says Supreme Court

Moratorium was to help those in distress and not meant as an opportunity for those already defaulting in their loan payments. Instead of loan waiver, steps were being taken to revive the various sectors, he submitted.

Loan accounts became NPAs only if payments were not made for 90 days. The moratorium period was excluded from 90 days. “Accounts do not become NPAs on September 1”, he assured the court.

Mr. Mehta explained that banks were empowered under RBI circulars on August 6 to customise relief for individual borrowers.

On the commercial side, he said an expert committee would come up with sector-specific guidelines on September 6.

The court adjourned the hearing to September 10.

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