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

RBI framework introduced by 2 circulars were specific to pandemic situation, Solicitor General Tushar Mehta says

Loan Repayment sign

Solicitor General Tushar Mehta, appearing for the Union government and Reserve Bank of India, informed the Supreme Court on Tuesday that

loan moratorium introduced during the

pandemic lockdown “is extendable to two years”.

While appearing before a Bench, led by Justice Ashok Bhushan, Mr. Mehta was asked whether the moratorium, which was to expire on August 31, had been extended. “It is extendable to two years,” he replied.

Mr. Mehta was referring to two circulars issued by RBI on August 6. An 82-page affidavit filed by the Ministry of Finance said the circulars have devised a framework, which not only allowed concessions in interest rates but also “permits lenders to allow moratorium of up to two years, irrespective of current six-month moratorium ending on August 31”.

The Ministry said, “A borrower fearful of being in default as on September 1 and becoming an NPA [Non Performing Asset] could continue to avail moratorium as a part of the resolution plan”.

The RBI framework introduced by the circulars were specific to the pandemic situation. With the framework in place, banks were “fully empowered” to resolve COVID-19-related stress and customise relief to individual borrowers. The various available concessions included alteration to the rate of interest and haircut on amount payable as interest; extension of the residual tenor of the loan, with or without moratorium, by up to two years; waiver of penal interest and charges; reschedule of repayment; conversion of accumulated interest into a fresh loan with deferred payment schedule; and sanction of additional loan, the Ministry said.

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Shrinking of economy

During the hearing, Mr. Mehta said the best was being done to revive the stressed sectors. “The national economy is stressed”. He referred in passing to the shrinking of the economy in the last quater by 23%. He had held preliminary talks with RBI officers. “Let the Central government, RBI and the bankers’ association put their heads together”, he suggested.

The Bench scheduled a hearing on September 2. The court wants to know whether there will be a waiver of interest on interest during moratorium.

The finance ministry said “a waiver of the interest on interest during moratorium would be against the basic canons of finance”. It noted, “Any moratorium is transient by its very nature and has to end one day... The best interest of the economic health of the country as well as that of borrowers would be best served by paving the way for a more durable long-term solution of debt restructuring”.

Borrowers took a “conscious call while opting for a moratorium”, it stated.

“Many borrowers after understanding the advantage of paying in time did not avail of the moratorium when the initially announced period of moratorium was extended from three months to six months”, the affidavit said.

Any ex post facto change in the loan moratorium terms to those who availed it over those who made the “extra effort” of repaying as per schedule would be “grossly inequitable and patently unfair”, the Ministry said.