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No loan to be declared NPA till further orders: SC

by Raju Vernekar
0 comment 3 minutes read

IT Correspondent
New Delhi, September 5:
While giving a relief to frazzled borrowers, facing hardship due to impact of corona virus pandemic, the Supreme Court on Thursday, ruled that accounts which were not declared as non-performing assets till August 31 this year, shall not be declared NPA till further orders. Further hearing of bunch of pleas seeking relief will be continue on September 10.

During the hearing of a batch of pleas raising the issue of interest being charged on instalments deferred during the moratorium period due to the COVID-19 pandemic, a bench comprising Justices Ashok Bhushan, R S Reddy and M R Shah, said that “no account shall become NPA till further orders. The SC passed the order while noting the submissions of senior advocate Harish Salve, who appeared for banks’ association.

Solicitor General Tushar Mehta, who appeared for the Centre and the RBI, said that banking sector is the “backbone of the economy” and “every sector” and “every economy” is under stress due to the pandemic. It is an accepted position worldwide that waiving off interest is not a good option for revival of economy. He referred to the affidavit filed recently by the Centre which said that under the RBI circulars the moratorium gives relief to borrowers as the account does not become NPA despite non-payment of dues during the period.

The pleas filed in the SC  have raised issue pertaining to validity of March 27 circular of the RBI 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.

Borrowers and various bodies representing different sectors had assailed before the apex court the charging of “penal’ interest on deferred EMI payments by banks under the moratorium scheme during the pandemic.

During the hearing conducted through video-conferencing, Mehta told the court that measures have been taken by the Union Finance Ministry and the RBI in tandem to deal with the situation arising out the pandemic.  “Impact of COVID is faced by every sector but its impact is different on different sectors. Like in Pharma and IT sectors, the impact is positive,” he said, adding that it was decided not to go for waiver of interest but to reduce the pressure of repayment of instalments.

Mehta said that idea behind the moratorium was to defer repayment to ease the burden on borrowers caused due to the pandemic. While contending that authorities concerned acknowledge the problem faced by borrowers, Mehta said that the August 6 circular of RBI takes care of mot of the issues raised by the petitioners.

“Your submission is that there will be no NPA for two months, then the banks should not take action against the borrowers, when we are hearing the matter,” the bench told Mehta and added that “We are concerned with interest on the interest”. The bench also told Mehta that grievance of the petitioners is that despite the measures undertaken by the government and the RBI, they have not been given the benefit which they should have been.The bench raised question about the compound interest and said the issue was whether the moratorium and penal interest can go on together. While referring to the submissions advanced by the petitioners, the bench said they have argued that there has to be sector wise relief.  

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