New Delhi: The Supreme Court Thursday passed an order saying accounts which have not been declared non-performing assets (NPAs) as on 31 August cannot be declared as such until further notice.
A bench led by Justice Ashok Bhushan issued the interim order while hearing a batch of petitions seeking waiver of interest on deferred EMIs during the moratorium period, which was introduced by the Reserve Bank of India (RBI) in June to ease the burden on existing borrowers due to Covid-19-related restrictions.
The central government argued that waiving off interests will weaken the banking sector, which is the backbone of the country’s economy. However, lawyers arguing for the petitioners said the moratorium is meaningless if interests are not waived.
The court will resume hearing the arguments in the matter on 30 September.
Defending the RBI circular, Solicitor General Tushar Mehta told the court that the idea of the moratorium was to defer repayment to ease burden on businesses caused by the pandemic-related restrictions, so that they can manage working capital. He clarified that the idea was not to waive off interests.
“The effort is that those who are in distress get the benefit and those who are defaulters are not able to take benefit,” Mehta submitted to the bench.
He also explained the scope of various types of borrowers and lenders, how various classes were impacted differently during the lockdown. “Everyone faced the impact, but it was different for every sector. Some sectors, such as the pharma and IT, had a positive impact.”
In response to the petitioners’ argument that accounts will become NPAs on 1 September because moratorium period ends on 31 August, Mehta said it will not happen.
“Normally, an account becomes an NPA if payment is not made for 90 days. The moratorium period will be excluded from the default period,” he told the bench.
He referred to RBI’s 6 August circular on the resolution plan and restructuring of loans, saying that it adequately takes care of the grievances raised by the petitioners. He also said the circular empowers banks to provide customised relief to borrowers, when the court asked for the kind of norms that will come into place.
According to Mehta, an expert committee is expected to come up with sector specific guidelines on 6 September.
‘Common man’s problems different from corporates’
Senior advocate Harish Salve, representing the Indian Bank Association (IBA), also spoke of a resolution plan which banks may come up with very soon. However, some sectors such as power, he said, may evolve their own norms.
“A common man’s problems are different from those of the corporates,” Salve said, agreeing with Mehta that sector-specific relief will have to be worked out. “Individual and industrial problems need to be addressed differently,” he added.
Those who have defaulted earlier, in 2019, may seek relief under another scheme but not due to Covid, even if their situation has worsened due to the pandemic.
Mehta said the RBI and the government are putting their heads together to devise a resolution plan.
When the court asked if the government can initiate comforting measures under the National Disaster Management Act or the Disaster Management Act, as argued by the petitioners, Mehta said the laws don’t mandate it. “It uses the word ‘may’ so it is not cast in stone that they have to,” he clarified.
Mehta later sided with the RBI on its stand to support the banks. “Banking sector is the backbone of the economy,” he said.