Thread by @barandbench

RBI CIRCULAR ON LOAN MORATORIUM:

Supreme Court will shortly begin hearing the petitions challenging the interest component of the circulars allowing Banks to grant moratorium on term loan repayment.

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The #SupremeCourt is considering the question of interest to be charged on interest as well as the powers of the Centre and the NDMA under the Disaster Management Act to provide relief on aspect of loan repayment during #COVID__19 pandemic.

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The Court conducted a day long hearing yesterday when the Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah heard arguments advanced by the petitioners.

Today, Solicitor General Tushar Mehta and Senior Counsel V Giri for RBI are scheduled to make their submissions.

Bench assembles and SG Mehta begins making his submissions for the RBI.

Mehta is summarising the arguments made by him yesterday, reiterates that the stand is not adversarial.

Mehta says that steps needed to be taken by the authorities required to take note of following aspects:

- Reduction of immediate pressure of payment of installments
- Revival of all possible sectors
- Restructuring of stressed assets
- Banking sector

Mehta explains the scope of various types of borrowers and lenders and the different types of distress faced by different classes.

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Mehta: Impact of Covid is faced by everyone but the impact is different for every sector. Impact is good also on sone sectors like Pharma sector, IT sector (referring to companies like @netflix)

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Mehta is now taking the Court through the RBI's circulars of March and May that provided for Banks to grant moratorium on repayment of term loans.

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Mehta: The idea of Moratorium was to defer repayment to ease the burden caused by Covid and lockdown so that business can manage working capital. The idea was not to waive off interest.

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Mehta: The effort is that those who are affected by Covid and facing distress get the benefit and those who are defaulters are not able to take benefit.

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Mehta now refers to the RBI Governor's statement on the lingering effect of COVID-19.

Mehta: Normally an account becomes an NPA if payment is not made for 90 days. So the moratorium period was to be excluded, first three months and then another three months after it was extended

Mehta: This is in response to the argument that accounts will become NPA on September 1 because moratorium period ended on August 31.

Mehta: Accounts do not become NPAs on September 1.

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Mehta: Instead of opting for interest waiver we have gone for the measures for revival of the sectors by the Finance Ministry in tandem with the RBI.

(Mehta is representing both, Finance Ministry and RBI)

Justice Bhushan: The main grievance of the petitioners is that they have not been given the adequate relief and the NDMA under the DM Act has not been active to give relief.

Justice Bhushan: Whether under DM Act something more has to be done by NDMA and other authorities? You have rightly said that other circulars are not under challenge so we are bound by Article 32 jurisdiction.

Justice Bhushan: Their argument is that there has to be sector wise relief.

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Mehta refers to the August 6 circular of the RBI on resolution plan and restructuring of loans, says that while this circular is not under challenge, this circular adequately takes care of the grievances raised by the petitioners.

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Mehta explains how the Banks are empowered under the August 6 circular to come up with and provide customised relief to ameliorate the problems of the borrowers.

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Mehta: The expert committee will come up with sector specific guidelines on September 6

Bench inquires about the kind of norms that will come into place. SC points out that when borrowers go to the Banks, they don't always know how much time will be taken.

Senior Counsel Harish Salve for the IBA tells the Court that the Banks may come up with the resolution plans, says some sectors like the Power sector may evolve their own norms.

Salve: Common man's problems are different from those of the corporates. If kind of borrowers and the type of borrowing is identified then specified relief can be provided. Individual and industrial problems need to be addressed differently.

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Bench asks SG to address on the point of NDMA and its action to provide relief.

SG Mehta says that the DM Act provides that the government "may" take action. So far, NDMA has deemed it fit for the RBI to adopt supervisory role.

Mehta: Not disputing that every sector is under stress, so is the country

Justice Bhushan: The Court has no intention to deal with the August 6 circular. It is not under challenge.

Justice Bhushan: The circular is not being challenged but the relief is being demanded.

Justice Reddy: Question is about the demands of compound interest in the meantime. Moratorium and penal interest cannot go together. RBI will have to clarify.

Mehta: This is why RBI and the government can out their heads together and is resolution plan is not come up with, then it will be taken note of.

Justice MR Shah: And what happens in the meantime

Salve: We will clarify that

Mehta (On NDMA): The Act says that government and NDMA can come in at any stage. The Act uses the word "may", it is not cast in stone that they have to.

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Mehta: I am not being technical here but the word used is "may"

Mehta: RBI has to support the Banks as well. Banking sector is the backbone of the economy.

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Mehta explains the circular which provides for resolution and restructuring and makes persons eligible for the benefit as long as their accounts were not in default as in February this year.

Justice Bhushan asks: So some people who defaulted earlier but their situation worsened due to Covid do not get the benefit under the circular.

Salve explains that those who defaulted earlier in 2019 may seek relief under another scheme but not under the Covid related scheme. They may seek relief under general scheme which also may take into account Covid.

Justice Reddy: But everything cannot be left up to individual Banks.

Salve: RBI will set up committee which will have representatives from Banks

Mehta says he will seek instructions on this.

Justice Bhushan: What about not being declared NPAs for 90 days? Should we record that in our order

Salve: That is the rule. Moratorium is not included in default period. After moratorium is over, then default period of 90 days will start. We are not giving concession here.

Salve: In fact Banks don't like to declare NPAs. They have been pulled up for not declaring NPAs.

Senior Counsel Rajiv Dutta for the petitioner seeks to make submissions, says he wants to point out how Banks are treating individuals.

"Our people have been asked to fall at their (banks) feet to deposit partial amounts."

SC asks Salve about the compound interest and interest on interest

Salve: Compound interest is charged as a contractual interest and penal interest is not being charged. On non-payment, the interest becomes penal compounding interest.

Supreme Court expresses inclination to defer hearing in the case.

Justice Bhushan: No account should be declared NPA for 2 months and the banks should not take action against borrowers which is coercive. We have to protect them.

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Senior Counsel V Giri requests Court to consider interim orders on the next date of hearing which is fixed by Court for next Thursday.

Supreme Court takes Mehta's and Banks' submissions on record, says accounts not declared NPAs till August 31 not to be declared NPAs till further orders.

Bench to resume hearing in the case on Thursday, September 10 at 10.30 AM.

Loan accounts that are not NPAs before August 31, 2020 cannot be declared as NPAs till further orders of the Supreme Court

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Accounts not declared NPAs as on August 31 should not be declared NPAs till further orders: Supreme Court passes interim order [Read full story] #SupremeCourt #loans #Covid_19 @RBI @FinMinIndia

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