As per the Supreme Court’s direction, loans that had not been declared non-performing assets (NPA) by August 31, 2020, must continue to remain free of this classification until further orders, extending the relief it had given on September 3.
The Supreme Court has been hearing petitions related to the six-months loan repayment moratorium that ended on August 31. It was a measure announced by the Reserve Bank of India (RBI) to help the burrowers hit by the pandemic affecting the economy.
The three-judge bench led by Ashok Bhushan has given the government time until September 28 to clarify its views on waiving the interest during the six-month period.
Court’s directions to the government on waiving interest:
The court wants the central government to address two issues- whether credit rating agencies can downgrade a business that has been hit by the pandemic during the moratorium period and whether interest can be charged on the interest.
As per the Supreme Court, specific instructions with regard to charging of compound interest and credit rating/downgrading during the moratorium period shall be obtained, so that an appropriate order can be issued on the next date of the hearing.
The court’s order further added that all the decisions are taken by the government, RBI, or different banks must be placed before the court for the consideration.
Petitioners had contended that the banks have started to debit the interest as well as the interest on interest for the moratorium period while others argued that the credit ratings were also being downgraded.
Bank’s response on charging compound interest:
Harish Salve, Senior advocate appearing for the Indian Bank’s Association stated charging compound interest was key to the viability of the financial industry.
The Reserve Bank of India had also made a similar representation to the court which was also backed by the government.
On this, the court directed the finance ministry that it shouldn’t go by purely commercial considerations and ignore the plight of borrowers who have been impacted by the pandemic.
This made the government state that it was aware of the impact of the pandemic on all the sectors and had also issued a separate circular which granted relief to the distressed sectors.
The court further hinted that if the government fails to clarify its stand by September 28, 2020, it will go ahead and will examine all the issues and grant whatever relief is required.
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