“There Is No Necessity For Additional Steps Such As Blanket Loan Moratoriums Or Interest Waivers” Government Says To The Supreme Court of India, RBI Corroborates That Any More Incentives Would Affect The Economy

Reserve Bank of India
Reserve Bank of India

The government has said to the apex court in India, the supreme court that there is no possibility of providing board based debt relief to different sectors. The government argues that the measures announced by the RBI till now is enough and anything more would affect the Indian economy. According to the government steps taken like wavering compounding interest waiver for loans up to Rs 2 crore for specified borrowers including MSMEs and individuals, is enough to tackle the COVID-19 led to the downfall. In a fresh affidavit filed by the government, they stated, “There is no necessity for additional steps such as blanket loan moratoriums or interest waivers..”

The Supreme Court of India had previously said that the government’s measure like waiving “interest on interest” on loans up to 2 crores is not enough to help the citizens and the MSMEs. The apex court also asked the government and the Reserve Bank of India to place on record the actions taken on KV Kamath committee’s report on debt restructuring and also urged the duo to think about the relevant “issues raised by the important estate associations and power producers”.

The government had said in return to the claim made by the supreme court that the banks have the power to resolve the COVID-19 led to stress. The government said that the banks have the power to customize relief to individual borrowers, other than big borrowers, through a grant of various concessions/reliefs, in terms of alteration in the interest rate. They also said that the banks can if necessary also take haircuts to resolve the situation.

The Reserve Bank of India, on Friday, has also stated in an affidavit that the banks have sufficient ways to resolve the impacts made by the COVID-19 pandemic while stipulating specific ratios for determining the eligibility of loan resolution under the special window notified by it on September 7. Also, the RBI said that the lenders have been provided with a lot of freedom to accommodate sector-specific characteristics. In the special window provided by the Reserve Bank of India, they allowed banks to recast stressed retail and corporate loans without classifying them as non-performing. They can only do so if they set aside 10% provisions on such advances.

The center had also informed the court in the affidavit that the decision to let go of the compound interest was taken by them in view of the pandemic and was taken to help the vulnerable borrowers. The center, however, maintained discretion on the fiscal policy. They also stated that the measures taken by initiatives like the Aatma Nirbhar Bharat scheme and Garib Kalyan scheme were enough to address problems faced by borrowers.

The affidavit made by the government said, “All the decisions are taken by the central government, the RBI as a regulator and the lending institutions are taken keeping in mind the severe financial stress globally as well as nationally and while ensuring that the sources are utilized so that the national economy and the economy of the banking sector can withstand the present financial situation, the duration of which is unknown.”

On the matter of sector-specific COViD-19 pandemic related reliefs that are being provided by the central government and the Reserve Bank of India, the government said to the apex court of the country they had taken decisions on the expenditure commitments based on “well-set” procedures. The government said, “More than  Rs 90,800 crore liquidity injection for power distribution companies has been sanctioned, substantially enabling power distribution companies to pay their outstanding dues to power producers and transmission companies.”

The Reserve Bank of India announced in last March, loan moratorium is a legal authorization to debtors to postpone the payment of EMIs. They had extended it to six months, therefore, to August 31. The government claims that more than fifty percent of borrowers did not avail of the moratorium. The supreme court is hearing a bunch of pleas. Including the one which has sought a direction to declare the portion of an RBI notification, issued on March 27, “ultra vires to the extent it charges interest on the loan amount during the moratorium period”.

The RBI claims that any more waiver on interest would entail “significant economic costs” which cannot be absorbed by the banks without a serious dent on their finances. This, in turn, would have a huge effect on the depositors and affect financial stability.

The RBI has also asked the apex court to vacate “with immediate effect” its September 4 interim order. The September 4 interim order restrains banks from classifying accounts into NPAs.