Covid-19: Supreme Court rejects plea for fresh loan moratorium relief

On May 6, RBI reopened a one-time scheme under which retail borrowers and small businesses were permitted to recast their loans, without being downgraded to NPAs. The scheme will be available for borrowers with aggregate outstanding dues of up to Rs 25 crore.

The Supreme Court on Friday rejected a plea seeking a fresh loan moratorium relief in the wake of the second Covid wave as implemented in the aftermath of the first, saying such decisions with financial ramifications are best left to the policymakers – the government and RBI — as “judges are not experts in financial matters”.

The court also turned down the other connected pleas of the petitioners for extension of time period under the RBI’s restructuring scheme for specific sectors based on Kamath Committee recommendations and temporary cessation of declaration of NPAs by banks due to the pandemic’s second wave, as put into effect after the first wave of the pandemic.

A bench of Justices Ashok Bhushan and MR Shah, while refusing to entertain a PIL filed by one advocate Vishal Tiwari, observed that the government had other pressing matters to address like vaccination, issues connected with migrant workers, etc. They further noted that it is for the government to assess the situation and take appropriate decisions and also that RBI had already announced certain financial packages as per its May 6 circular.

The apex court had on March 23 restrained lenders from charging interest on interest/compound interest/penal interest during the six-month loan moratorium period between March 1 to August 31, 2020. However, it refused to extend the loan moratorium period beyond March 1 to August 31, 2020, saying it is a economic policy decision and should be left to the government and RBI.

That was the end of an intense legal battle that dragged on for several months. The apex court which had repeatedly expressed concerns over the plight of the borrowers, especially those hit hard by the pandemic like power and real estate, finally refused to alter the broad contours of the moratorium package, by accepting the government-RBI’s view that complete interest relief for all classes of borrowers would jeopardise the banking system.

The apex court then vacated a September 3, 2020, stay order that restrained banks from declaring as NPAs loan accounts that were not classified as NPAs prior to August 31, 2020.

However, the court had extended the compound interest relief, which in an October 2020 government directive was restricted to loans up to Rs 2 crore, to all borrowers, saying no distinction could be made between small and large borrowers. Icra had said the move could cost a total of Rs 13,500-14,000 crore to the exchequer if the government agrees to foot the bill. The earlier waiver for loans up to Rs 2 crore was estimated to cost ~Rs 6,500 crore to exchequer (which the government agreed to bear). Banks have approached the government for the additional Rs 7,000-7,500 crore, but the latter has so far been non-committal, implying a burden on banks.

The petitioner on Friday, while claiming that the second wave of the pandemic has made at least one crore people jobless, said the relief given by the RBI circular was not sufficient to address the problems of the middle-class families. “No such monetary relief and packages has been declared by the sovereign in this stressed time and people are under tremendous pressure to maintain the EMIs and is always under the threat of accounts being declared NPA. With no salary, revenue for individuals it has turned out to be a hopeless situation for individuals. The RBI on May 6, 2021 has issued a circular for resolution plan 2.0, which cannot be said adequate relief to all in the present circumstances being arbitrary, unfair and just an eyewash,” the petition stated.

In August 2020, RBI extended a special window for lenders to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances. Only those companies and individuals whose loan accounts are in default for not more than 30 days as of March 1, 2020, were eligible for it. For corporate borrowers, banks could invoke a resolution plan until December 31, 2020 and implement it by June 30, 2021.

RBI had also set up the KV Kamath panel to recommend eligibility parameters for the restructuring of loans. The panel had identified 26 sectors, including power, construction, iron and steel, roads, real estate, aviation, hotels, restaurants and tourism, for the relief. In November 2020, the government launched a new version of its Rs 3-lakh-crore guaranteed loan programme, originally meant for MSMEs, to benefit even larger firms in healthcare and the 26 sectors chosen by the Kamath panel.

On May 6, RBI reopened a one-time scheme under which retail borrowers and small businesses were permitted to recast their loans, without being downgraded to NPAs. The scheme will be available for borrowers with aggregate outstanding dues of up to Rs 25 crore. Only those accounts which were classified as standard as of March 31, 2021, can be restructured.