The Union government too, in its response, told the SC that it won’t be possible to offer relief beyond what has already been announced.

Reserve Bank of India
Money Moratorium Saturday, October 10, 2020 - 14:52

The Reserve Bank of India has told the Supreme Court that it is not possible to extend the moratorium on loan repayments beyond six months, as it could impact the credit behaviour of borrowers and increase the risks of delinquencies and pressure of repayment, once payments are due. The RBI said that extending the moratorium may impact the overall credit discipline, which would have a ‘debilitating impact on the process of credit creation in the economy’. It also told SC that it is not possible to provide any more relief either.

This statement was part of an affidavit that RBI filed with the Supreme Court, which is hearing a plea to waive off interest on interest for loan payments during the six-month moratorium period. The RBI said in its affidavit that a Resolution Framework was announced as a more durable solution.

“It was with this consideration in mind that the Reserve Bank has announced the Resolution Framework for COVID-19-related stress… on August 6, 2020, which enables the lenders to implement a resolution plan in respect of personal loans as well as other exposures affected due to COVID-19, subject to the prescribed conditions, without asset classification downgrade. The framework, among other things, permits extension of the moratorium by a maximum of two years,” RBI stated in its response.

A Bench comprising Justices Ashok Bhushan, R Subhash Reddy and MR Shah was hearing a plea filed by Agra resident Gajendra Sharma seeking for the interest on EMIs to be waived off. It had earlier told the Union Government to consider not charging interest on interest for the deferred EMI payments during the moratorium and directed the RBI to not classify any loan account as non-performing assets (NPAs).

The Union government then told the SC that while a complete waiver is not possible, it will waive off compound interest on loans of up to Rs 2 crore from the six-month moratorium period and that it has decided to bear the burden of the compound interest waiver. This move would be for MSME (Medium, Small and Micro Enterprises) loans, education loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professionals and consumption loans, all up to Rs 2 crore.

On Monday, the SC said that the government’s response didn’t include all necessary details and had sought a response from the Union government and the RBI with respect to various sectors which require financial restructuring after being hit by the COVID-19 pandemic.

In its response, the Union government has reportedly said that it wouldn’t be possible to offer any further relief in addition to the financial relief packages already announced and its decision to waive off compound interest and bear that burden.

The RBI has also reportedly prayed before the SC to lift the stay not being able to classify loan accounts as NPAs. “If the stay is not lifted immediately, it shall have huge implications for the banking system, apart from undermining the regulatory mandate of the Reserve Bank of India,” RBI reportedly stated in the affidavit. The matter will come up for hearing on October 13.

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