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COVID-19: Supreme Court asks Centre, RBI to clarify Loan Moratorium Issue

On Friday, a Supreme Court bench, led by Justice L Nageswara Rao, issued a notice to the Reserve Bank of India and the Ministry of Finance asking whether it is mandatory for banks to grant moratorium on instalments of term-loans to all non-banking finance companies (NBFCs) or if banks can exercise discretionary power to grant such benefit.

This notice was issued to RBI, Centre and SEBI, following up on a plea by the Haryana chapter of Confederation of Real Estate Developers’ Associations of India (CREDAI), the top body of private real estate developers. The plea, submitted on May 12, had alleged that several lenders had not granted moratorium to their group of companies.

This had happened despite the circular, announced under RBI’s COVID-19 Regulatory Package, which made the moratorium an entitlement and put banks, in charge of setting interest rates. The circular had also specified that moratoriums be placed on all loans, subject to request of borrowers, outstanding as of March 1 .

Retail loans such as vehicle loans, home loans and personal loans, agricultural term loans as well as crop loans and credit card dues would be eligible for the moratorium. It had also asked banks to push back the repayment schedule for such loans, as also the residual tenor, would be shifted across the board by 3 months after the moratorium period. So, CREDAI demanded that the current RBI moratorium be made mandatory, not discretionary, for all banks, NBFCs and HFCs.

Furthermore, the plea expressed lack of clarity over whether NBFCs and Housing Finance Companies (HFCs) are also eligible for the loan moratorium announced by the RBI on March 27. It concluded that a six-month suspension on repayments due for any commercial papers, bonds and non-convertible debentures was also necessary, in light of the current crisis.

Senior advocate Harish Salve, appearing for CREDAI, apprised the apex court bench, in this case. The CREDAI plea was sent there after RBI had told Delhi High Court that the decision to allow the moratorium to a borrower was left under the discretion of the lender. Salve argued that the RBI Governor’s speech, earlier in April, indicated that it was binding. “Our NBFCs have large loans. Banks are saying we don’t need to give you relief,” he added.

Salve also argued that there was a constitutional duty upon the regulators to act in sync and put, in place, measures that would elevate the hardship caused to all the sectors. “After seeing the package announced by the government, this issue may be sorted out,” Salve added.

Solicitor General Tushar Mehta told the bench, which also comprised Justices Sanjay Kishan Kaul and BR Gavai, that he would seek instructions from RBI, finance ministry and the Securities and Exchange Board of India and get back to the court. The court sought their responses within two weeks of the hearing.

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Saunak Chowdhury

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