Loan Moratorium is a period of time wherein the borrower has no requirement to make any repayment. It is a waiting period before which they start repaying in the form of EMIs. During the lockdown, the RBI, Central bank of India, in March announced a moratorium. RBI took this move to give the borrowers a breathing time due to the pandemic slowdown for three months and later extended it to August.
What did the SC do about the loan moratorium?
On September 3, Supreme Court heard a batch of the petition seeking a loan moratorium waiver granted by the Reserve Bank of India. The panel of the hearing consisted of Justice Ashok Bhushan, Justice R Subhash Reddy, and Justice MR Shah. The SC along with the Finance Minister of India, Nirmala Sitharaman offered a breather to bank borrowers to prevent loans to hamper their creditworthiness. On September 1, the loan moratorium lapsed on account of the COVID-19 pandemic and thus, the borrowers started fretting about the fact they have to repay their loans. To take them out of this stressful time, this Supreme Court’s move came as a breather and opulence for them.
The SC said that the loan accounts that are not classified as Non -performing assets as of August 31, should not be considered so until further notice. Sitharaman urged the lenders to support the borrowers; corporate, and individual collectively. The ministry statement added, “During her interaction, the finance minister focused on lenders immediately putting in place a board-approved policy for resolution, identifying eligible borrowers and reaching out to them.”
The lenders also, in return, also honored the decision. They said that they will “comply with the timelines stipulated by the Reserve Bank of India.”
Solicitor General Tushar Mehta said in the Supreme Court that the banking sector is the backbone of our economy, we can't take any decision which can weaken the economy. https://t.co/luO2kkoldA
— ANI (@ANI) September 3, 2020
About Non-performing Assets
A three-judge Bench said, “Accounts not declared NPA as on August 31 shall not be declared NPA for two months.”
The order protects the economy from further inclusion of Non-performing assets, which will only ruin the state of the economy. This protection will continue until the petitions seeking interest waiver on loans are disposed of. The matter will have a future hearing on September 10.
Solicitor General Tushar Mehta appearing for the Union Government and the SC said that the idea is not to waive interest, but to reduce the payment pressure in the wake of COVID-19. He said, “The idea of loan moratorium was to defer payment to ease the COVID-19’s burden so that the business can maintain working capital. The banking sector is the backbone of our economy, we can’t take any decision which can weaken the economy.”
The meeting took place via video conferencing and the petition panel was led by former ICICI Bank chief KV Kamath. The future hearing will clarify the matter as noted by Justice Reddy. “Question is about the demands of compound interest in the meantime. Moratorium and penal interest cannot go together. RBI will have to clarify.”