SC extends relief on NPAs

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The Supreme Court Thursday extended its interim order that no account is to be declared NPA till further orders after the Centre said an expert panel has been set up to look into the issue of interest being charged by banks on instalments deferred during the moratorium period due to COVID-19 pandemic.

The government at “highest level” is considering all the issues raised before the court in the petitions and a decision would be taken within two weeks, the Centre informed the apex court. A bench headed by Justice Ashok Bhushan, hearing a batch of pleas against interest on instalments which were deferred during the moratorium period due to the pandemic, directed that decisions taken by the Centre, the RBI and different banks be placed on record for consideration.

“As noted above, on the next date of hearing, the specific instructions with regard to charging of compound interest and credit rating/downgrading during moratorium period shall be obtained, so that appropriate order be issued on the next date of hearing,” said the bench, also comprising Justices R S Reddy and M R Shah.

“List on September 28, 2020. Earlier interim order(s) to continue,” the bench said while granting two weeks to file an affidavit on the issues raised in the court.

Solicitor General Tushar Mehta, appearing for the Centre, said that within two weeks an appropriate affidavit will be filed, bringing on record the relevant decisions and directions of the government as well as the Reserve Bank of India (RBI).

Mehta said that the Centre “on the highest level is considering all issues which have been raised in this batch of cases” and the government is also considering these issues in consultation with the RBI and other banks.

He said the decision will be taken within two weeks on the manner and mechanism of extending benefit to different sectors which are facing problems during the pandemic.

Mehta said everything has to be considered holistically and the government is considering all the sectors, for which an expert panel has been constituted. The bench told Mehta that concrete decisions should be taken with clarity so that the matter does not get adjourned again.

Mehta sought deferment of hearing by two weeks saying that considered decisions have to be taken in consultation with all the stakeholders including banks which play a vital role in the issues at hand.

The lawyers appearing for petitioners expressed their concern with regard to individual loans, apart from other sectors, and said that individuals are more adversely affected during the pandemic.

They argued that banks are debiting interest as well as interest on interest from accounts of creditors and credit rating is also being downgraded, which may have adverse effect with regard to various account holders.

Senior advocate Harish Salve, appearing for banks’ association, said that norms and guidelines have to be issued with regard to individual borrowers.

He said that banks have been following broad system of banking and without considering their stand, no interim order should be passed at this stage. He pointed out that for power sector, the states will have to be taken on board as entire loans cannot be put on banks.

The counsel representing the petitioners said that the status, as was continuing till August 31, 2020, may be allowed to continue till the matter is considered by the government and appropriate decisions are taken.

Senior advocate Kapil Sibal, appearing for CREDAI, said that current restructuring of loans won’t provide relief to 95 per cent of borrowers and pointed that downgrading of borrowers is continuing which must be protected.

Senior advocate V Giri, appearing for the RBI, said that downgrading is being done on an individual basis and as per existing norms.

He sought deferment of hearing by two weeks saying all issues are under active consideration at the highest level.

Salve told the court that now the matter has become adversarial and urged the court to implead banks association in all the petitions on the issue. The bench said it was not the question of adversarial as with respect to interest it is yet to take a decision but with regard to charging of interest on interest by banks the court is inclined to pass orders.

Salve pointed that entire banking structure works on compound interest and that is what is being currently done. On September 3, in a relief to stressed borrowers who are facing hardship due to impact of pandemic, the top court had said that accounts which were not declared as non-performing assets till August 31 this year, shall not be declared NPA till further orders.

The pleas in the apex court have raised issue pertaining to validity of RBI’s March 27 circular which allowed lending institutions to grant moratorium on payment of instalments of term loans falling due between March 1, 2020 and May 31 this year due to the pandemic. Later, the period of moratorium was extended till August 31. The Centre had recently told the court that waiver of interest on deferred EMIs during moratorium period would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule. RBI has however come out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers, the Centre had informed the top court.