Not viable to extend moratorium date, RBI tells SC

Reserve Bank of India (RBI) headquarters in Mumbai. File   | Photo Credit: REUTERS

The Reserve Bank of India (RBI) on Wednesday told the Supreme Court that extending the loan moratorium date was “not viable”.

Appearing before a three-judge Bench led by Justice Ashok Bhushan, the RBI, represented by senior advocate V. Giri, referred to clause 3 of its August 6 circular for ‘Resolution Framework for COVID-19-related Stress’ to point out that lending institutions, guided by their respective board-approved policy, would prepare viable resolution plans for eligible borrowers. But lenders would ensure that this resolution was provided only to the borrowers stressed on account of COVID-19.

The board-approved policy shall, inter alia, detail the eligibility of borrowers in respect of whom the lending institutions may be willing to consider the resolution, and lay down the due diligence considerations to be followed by the lending institutions to establish the necessity of implementing a resolution plan in respect of the borrower concerned, the RBI reiterated in court on the August 6 circular.

Borrowers needed to only invoke their interest in the benefits enumerated under the circular, Mr. Giri said.

“So, borrowers have to only come and say that they want to take the benefit of the RBI circular of August 6?”, the Bench queried.

Solicitor General Tushar Mehta, for the Centre, suggested that the RBI could even, once again, clarify the contents of the circular for the benefit of borrowers, which include corporate and industry sectors stressed by the pandemic.

The RBI said the framework issued by it on August 6 was aimed at facilitating revival of real sector activities and mitigating the impact on the ultimate borrowers, which were under financial stress caused by the economic fallout of the pandemic.

Senior advocate Mukul Rohatgi, for the State Bank of India, said that “for every borrower, there are lakhs and lakhs of depositors”.

The court had been prodding banks almost everyday for loan relief, but now it was time to leave the fiscal policy to the government, he stated.

The court scheduled the case for further hearing on December 14.

‘No order’

On Tuesday, the court orally said it would not pass any order that may risk the economy going “haywire”.

This comment came after Mr. Mehta revealed that a blanket waiver of interest on debts incurred by all classes and categories of borrowers for the moratorium period would mean forgoing an estimated over ₹6 lakh crore.

“If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival”, he had submitted.

Mr. Giri had said the discretion to frame a resolution plan should be with the bank and not the borrower.

The court is hearing the Centre’s response to separate pleas made by industry, real estate and power sectors, among others, for debt relief, including waiver of interest, for the six-month loan moratorium period, to help them get back on their feet amid the pandemic.

Mr. Mehta had said a possible crippling of the banking sector was one of the main reasons for “not even contemplating waiver interest” and restricting relief to “deferment of payment of instalments”.

He had explained that for every loan account there were about 8.5 deposit accounts in the Indian banking system.

“As mentioned on oath by Indian Banks Association, the State Bank of India has stated that interest amount from borrowers during six months moratorium works out to be ₹88,078 crore [approx.] whereas the interest payable to the depositors during the said period works out to be ₹75,157 Crore [approx.]”, the Solicitor General had stated.

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Printable version | Aug 1, 2021 4:29:18 AM |

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