Moratorium on Loan installments by RBI amid COVID-19
Background
Owing to the situation of nation-wide lockdown and its impact on the various business sectors across India, Reserve Bank of India (“RBI”) on 27th March, 2020 vide notification bearing no. DOR.No.BP.BC.47/21.04.048/2019-20 (“Notification”) had permitted banks to grant moratorium on payments of all installments in respect of term loans for three months i.e. from 1st March, 2020 to 31st May, 2020 (“Moratorium”). Later, the period of Moratorium was extended up to a further period of three months i.e. till 31st August, 2020 by RBI.
The RBI also granted relief with respect to asset classification i.e.it excluded the period of Moratorium from the 90 day norm of declaring an account as Non-Performing Asset (“NPA”).
The RBI however, in its Notification and its subsequent extension permitted the banks to charge interest on the installments payable in respect of term loans during the Moratorium period.
The said RBI Notification and its subsequent extension expired on 31st August, 2020.
Writ Petition filed in the Supreme Court
Sometime in or around May, 2020, a plea was filed by one Mr. Gajendra Sharma seeking direction to declare the portion of the RBI’s Notification as something beyond the regulator’s legal power or authority, to the extent that it charges interest on the loan amount during the Moratorium period. Thereafter, a number of sectoral bodies joined the cause with the original petition, demanding waiver of interest, or of interest on interest being charged during the Moratorium period.
On 3rd September, 2020, during the hearing of the above mentioned batch of writ petitions, Senior Advocate Mr. Harish Salve appearing on behalf of the Indian Banks Association, submitted that “no account shall become NPA at least for a period of two months”
Considering the above mentioned submissions made by Mr. Harish Salve the Supreme Court vide its order in Writ Petition No. 825 of 2020 granted interim relief to the borrowers by directing the banks not to take any coercive action against the borrower and no to declare the loan accounts as NPA, that were not declared as NPA till 31st August, 2020.
Subsequently, the matter was listed for further hearing on 10th September, 2020 wherein the Supreme Court stated that it was inclined to pass order against charging of interest in interest during moratorium period and asked the Government to consider to plea of not downgrading the credit rating of the borrowers.
During the hearing, the Union of India informed the Supreme Court that an expert committee has been constituted to consider the issue of extension of moratorium, interest and interest on interest being charged during the moratorium and other related issues.
In view of the above, the Supreme Court granted two weeks to Solicitor General, Tushar Mehta to file a detailed affidavit and ordered the Interim Order passed in the matter to continue till 28th September, 2020.
News flash dated 10.09.2020
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