SC Hearing on Loan Moratorium Highlights | The Supreme Court heard petitions seeking interest waiver on the six-month loan EMI moratorium that was allowed by the RBI.
The Supreme Court (SC) on September 10 heard a batch of petitions seeking interest waiver during the loan moratorium period.
A bench led by Justice Ashok Bhushan hearing pleas seeking extension of the loan moratorium and waiver of accruing interest.
The apex court will resume hearing the petitions on September 28. The SC order asking banks not to declare accounts as non-performing assets (NPAs) for two months will continue.
Also read: RBI's annual report | Moratorium, loan restructuring may impact banks’ health
SC observations:
> With regard to interest we have yet to take a decision but on the aspect of debiting of interest on interest, we are inclined to pass an order that it may not be debited. (Inputs from LiveLaw)
> Will allow time to government, government needs to take a planned, holistic approach. (Inputs from CNBC-TV18)
> Banks, Centre cannot call borrowers hoping for relief as adversarial.
> Government needs to respond to concerns over interest costs being debited, downgrade of accounts.
> Allowing two weeks to file appropriate documents, decisions. Mechanism of extending benefits to different sectors also to be clarified.
Solicitor General Tushar Mehta to SC:
> On concerns expressed on the last date, two or three rounds of meeting have taken place and it has been examined. Considered decisions have to be taken. In consultation with banks as banks will play a vital role. Kindly defer for two weeks. (Inputs from LiveLaw)
> Can assure that the discussion is being carried out at levels much higher than the RBI. (Inputs from CNBC-TV18)
Senior Advocate Harish Salve for IBA to SC:
> Restructuring norms yet to be worked out. Discretion won't be left with the banks. (Inputs from CNBC-TV18)
> How can we not downgrade accounts of certain borrowers despite COVID impact? Downgrade represents borrowing capacity.
> Downgrading is based on many factors. Companies will suffer. Had they told us this earlier, we would have taken instructions. Please do not pass orders today. (Inputs from LiveLaw)
> Litigation has now turned adversarial. Realty, power sectors are pushing for undue reliefs. (Inputs from CNBC-TV18)
CREDAI to SC:
> State Bank of India (SBI) admitted, as per present conditions only 5 percent of the loans can Be restructured. (Inputs from CNBC-TV18).
> SC should also protect against credit ratings downgrade. Banks have started debiting the last six months' interest to accounts of borrowers.
> Accounts of member companies are being progressively downgraded from SMA 0 to SMA 1 & to SMA 2. RBI circular also prevents banks from downgrading.
Also read: Interest waiver on moratorium loans | Waiver or not, someone is bound to get hurt
Senior Advocate Rajiv Dutta, appearing for petitioners, to SC:
> Happy that they are trying to restructure corporate loans. However, important to remember that people are suffering. Imperative to make a statement for the Centre on non-charging of interest on interest. (Inputs from LiveLaw)
> We have got letters from banks saying that interest on interest will be charged.
Senior Advocate Mukul Rohatgi for SBI to SC:
> Borrowers seeing broad based reliefs. There cannot be a one size fits all approach. Lakhs of crores are due to me as the largest lender. Fraudulent elements will also seek benefits under any relief allowed by SC.
Here's a quick recap of what happened previously:
On September 3, the SC said banks should not declare accounts as non-performing assets (NPAs) for two months and banks must not take coercive action against borrowers.
The RBI had in March announced a moratorium on repayment of term deposits for three months, which was later extended till August 31. The move was intended to provide borrowers relief during the COVID-19 pandemic.
The SC has previously said there is "no merit in charging interest on interest".
The RBI had on June 4 said lenders will lose Rs 2 lakh crore if interest is waived during the moratorium period.
Senior Advocate Rajiv Dutta, who appeared for a petitioner, on September 2 said "interest on interest is absolutely and prima facie wrong and they cannot charge it".