Thread by @barandbench

[RBI LOAN MORATORIUM ISSUE]

A Justice Ashok Bhushan led bench of the Supreme Court hears the plea seeking relief from the interest payable on the moratorium offered on loans by the @RBI

SG Mehta: These loanees need not be small time loans. It can be 500 crores to 2000 crores.

J Shah: Not necessarily

J Bhushan: You can't have such distinctions

SG Mehta: Banks are also under obligation to give compound interest to depositors.

#SupremeCourt
#moratorium
#lockdown

J Bhushan: We understand that since you give interest to depositors you will charge the same.

SG Mehta: Moratorium only means deferment.

J Bhushan: You are saying that payment of 1 lakh is deferred. But you cannot charge interest on this 1 lakh after 3 months.

J Kaul: You are giving them a favour by deferring the payment. Its a irony that thousands of crores have been defaulted on NPA accounts but you have to charge interest here. We are aware of the problems if interest is not charged. But pandemic is not a normal situation.

SG Mehta: There will be no penal charges for deferment.

J Kaul: Centre says RBI can do. RBI says Bank can do. We are concerned with the burden of interest on interest.

Senior Adv Harish Salve for Banks association: Moratorium means installment gets pushed off. Banks has to arrange funding for moratorium period because compound interest has to be paid.

Senior Adv Salve: It is not that compound interest will run. If moratorium is such that installment gets pushed to the fag end of the loan then compound interest won't be pushed off.

SG Mehta: We have separate scheme for borrowers in agricultural sector, micro food processing units, farming sector etc.

Salve: Airline is completely closed. Now if they say that they default then either we approach IBC or committee of creditors.

Senior Adv Harish Salve: This petition is very premature. We are still in the tunnel. According to European Bank estimates, economy will rebound by 2022. We don't know when we rebound by September, October etc. No interest will put banks under a lot of strain.

Salve: If all sectors are in distress, government may have to fund, we may have to fund.

J Bhushan: If they don't give interest on interest then you will term them as NPA

Salve: we cannot have mass bankruptcy. Some companies are doing worse, some companies are doing too good. Check @netflix which is earning a lot of revenue now.

J Bhushan: Most companies are doing worse

Senior Adv Mukul Rohatgi: 90% people have not taken moratoriums because they know it is not free.
When there are 100 installments for buying home then of interest for a year is deffered, then when will be paid?
J Bhushan: we are not speaking about completely waiving off interest

J Bhushan: Suppose you don't charge interest on interest for 3 months. Can you take this burden?

Rohatgi: I dont think so. Interest on interest is not a correct phase as one part becomes capital interest after a bit. This facility cannot be availed for free

J Shah to SG Mehta: Once you do the moratorium then you have to see moratorium is availed off. That's why people are not availing this.

Salve: Let's wait for three months and see when we come out of the tunnel as to what the situation is

SG: RBI's worry and Centre's concern is about the 133 crore of deposits. If no interest is charged then it would have a cascading effect?

J Bhushan: Can Centre help the banks for the interest being charge for the period of loan deferment or can the banks absorb this?

Salve: Once we are back on the track we will know the exact gap of moratorium and then see how we address the payment of interest.

J Bhushan: we order that matter be listed in first week of August

Senior Adv Rajiv Dutta for petitioner: banking is borrowing and lending. It is not a complicated subject. There is an application filed by IBA where a list is given of countries etc where compound interest will be deposited.

Dutta: What about the ones who have taken humongous loans and have run away?

Vishwanathan: NDMA states that there needs to be relief with recovery of loans.

Vishwanathan: Now there are no loan restructuring mechanism. Centre needs to restructure the loans.

Adv Sisdharth Bhatnagar, for petitioner: Banks are saying let accounts become NPA. We have come so that we don't become an NPA.

ORDER: 1/n

Centre and RBI to review the matter. Let the matter be listed on first week of August. Indian Banks Association to see if new guidelines can be brought in force for moratorium issue.

Salve: ofcourse, we can't afford mass bankruptcy

"Crores have been defaulted on NPA accounts but you have to charge interest", Supreme Court asks Centre and #RBI to review interest on loan moratorium

@RBI

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