As loan moratorium scheme ends, SC asks banks not to declare accounts as NPAs till further orders

Srinagar: In an interim order passed on Thursday, the Supreme Court (SC) of India has said that the accounts not declared as non-performing asset (NPA) as on 31 August shall not be declared as NPAs till further notice.

The move comes days after the RBI EMI moratorium scheme ended in India on August 31, 2020.

Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.

While hearing a batch of petitions seeking interest waiver on loan moratorium granted by Reserve Bank of India (RBI), the apex court ordered has came a relief for those hit by the COVID outbreak.

The order protects those accounts from being declared as NPAs which were not NPA’s as on August 31.

Amid the growing numbers of Coronavirus cases in India, the central bank of India allowed the lenders to grant a loan moratorium for three months of EMI (Equated Monthly Installments), falling due between March 1 to 31 2020.

Aimed to help the common man who faced loss of jobs or pay cut during a global pandemic, RBI  later extended it for further three month till August 31.

The protection from being declared NPAs for such accounts will continue till the petitions seeking interest waiver on loans during COVID lockdown were disposed off. In this regard, the SC will continue the hearing of the case on 10 September.

While passing the interim order, the Bench which also included Justice R Subhash Reddy and Justice MR Shah, noted that borrowers needed to be protected.

While arguing whether banks should charge interest on moratorium period, Solicitor General Tushar Mehta told the Supreme Court: “the idea of the moratorium was to defer repayment to ease the burden caused by COVID and lockdown so that business can manage working capital. The idea was not to waive off interest. The effort is that those who are affected by COVID and facing distress get the benefit and those who are defaulters are not able to take benefit.”

“The expert committee will come up with sector specific guidelines on September 6,” Mehta told the apex court. Expert panel will decide on the sector-wise relief to ease stress caused by the pandemic, Mehta added.

NDMA (National Disaster Management Authority) is not required to step in at this stage, Solicitor General added.

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

On Tuesday, GoI and RBI informed the SC that the moratorium period on repayment of loans amid the COVID outbreak is “extendable” by two years.

“We are in the process of identifying the distressed sectors to vary benefits as per the (COVID-19) impact of hit they have taken,” Mehta was quoted by the report as having said.

Pertinently, Finance Minister of India Nirmala Sitharaman has also asked bankers to roll out loan resolution schemes by September 15, saying that “COVID related distress must not impact their assessment of borrowers’ creditworthiness.”


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