Supreme Court Furthers Deadline For Extending NPA In A Bid To Relieve Stressed Borrowers, Moratoriums Extended Till Further Notice

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In order to give relief to stressed borrowers, the Supreme court of India passed an interim order on Thursday saying that the accounts not declared as non-performing assets (NPA) as on 31st August should not be declared as NPAs till further notice.

On Thursday, the apex court heard a batch of petitions seeking interest waiver on loan moratorium granted by Reserve Bank of India (RBI). The central bank of India allowed the lenders to grant a loan moratorium for three months of EMI (Equated Monthly Instalments), falling due between 1 st March 2020 and 31 st May 2020, in the wake of coronavirus pandemic. Later, RBI extended it for further three months till 31 st August with the aim of helping the common man who faced the loss of jobs or pay cut during a global pandemic.

The interim order was passed by the three-judge Bench headed by Justice Ashok Bhushan and comprising R Subhash Reddy and MR Shahwhile hearing a batch of petitions challenging the levy of interest on loans during the moratorium period. The Bench will hear the case next on September 10.

The apex court’s directive came while noting the submissions of senior lawyer Harish Salve, who appeared for a banks’ association and said that “no account shall become NPA at least for a period of two months”.

While discussing, whether the banks should charge interest on moratorium period, Solicitor General Tushar Mehta told the Supreme Court, “The motive behind the moratorium was to defer repayment to give a short and ease the burden caused by COVID and lockdown, so that business can manage working capital. The aim was not never to waive off the interest. The objective is to make sure those who are genuinely affected by COVID and facing distress get the benefit and those who are defaulters are not able to take benefit.”

Agra resident Gajendra Sharma filed a plea which sought of gave a direction to declare the fraction of the Reserve Bank of India’s (RBI’s) March 27 notification as something beyond the regulator’s legal power, to the extent that it charges interest on the loan amount during the moratorium period. A number of sectoral bodies have joined cause with the original petition, demanding waiver of interest, or waiver of interest on interest on the suspended monthly instalments.

Mehta told the apex court that the expert committee on September 6 will come up with sector-specific guidelines. Mehta also added the expert panel will pass a decision on the sector-wise relief in order to ease the stress caused by the pandemic. NDMA (National Disaster Management Authority) is not required to step in at this stage.

“Question is about the demands of compound interest in the meantime. Moratorium and penal interest cannot go together.According to legal news website Bar & Bench, RBI will have to clarify,” said Justice Reddy.

On Thursday, Finance Minister NirmalaSitharamanasked bankers to roll out loan resolutions scheme by September 15.  The distress caused by Covud29 and lockdown should not influence their assessment of the creditworthiness of the borrowers.

On Tuesday, the Centre and RBI informed the Supreme Court that the moratorium period on repayment of loans amid the COVID-19 pandemic is “extendable” by two years.

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