Bank's Extension Of COVID-19 Moratorium Cannot Override RBI Norms On NPA Classification: HP High Court
The Himachal Pradesh High Court has held that a bank's decision to extend a loan moratorium beyond the period prescribed under the Reserve Bank of India's (RBI) COVID-19 relief measures cannot override RBI's prudential norms on classifying loan accounts as Non-Performing Assets (NPAs).
The Court remarked that a borrower's request for an extended moratorium could not be treated as a waiver of its right to have the loan account classified in accordance with RBI instructions.
The Court made the observation while directing Himachal Pradesh State Co-operative Bank to consider the One Time Settlement (OTS) proposal of M/s Nanal Hydro Power Consultancy Pvt. Ltd., treating its loan account as an NPA from November 2020.
Justice Sandeep Sharma observed that “Mere acceding to the request, if any made by the petitioner for extension of moratorium period after expiry of moratorium period granted by Reserve Bank of India vide circulars dated 27.03.2020 and 23.05.2020 cannot be a ground for the respondent-Bank to claim that petitioner by asking for a period of moratorium, itself waived off its right, if any, of its being declared as NPA in terms of instruction issued by RBI, which is the apex body as far as banking is concerned.”
Background:
The petitioner, M/s Nanal Hydro Power Consultancy Pvt. Ltd., had availed a term loan of ₹20.41 crore from Himachal Pradesh State Co-operative Bank for developing a 3.30 MW small hydroelectric project in Chamba.
Following repayment defaults for September, October and November 2020, the company contended that its loan account ought to have been classified as a Non-Performing Asset (NPA) in November 2020.
However, the bank classified it as an NPA only on November 6, 2021, citing the extended moratorium and subsequent repayment schedule. The dispute arose when the bank rejected the company's request to reconsider the NPA classification date for determining its eligibility under the One Time Settlement (OTS) Scheme, 2024, prompting it to approach the High Court.
The Himachal Pradesh High Court held that the petitioner's loan account ought to have been classified as an NPA in November 2020, as it had defaulted on three consecutive monthly instalments. The Court observed that the bank's extension of the moratorium could not override the RBI's prudential norms requiring NPA classification after 90 days of continuous default.
The Court further noted that the bank had disregarded its statutory auditor's opinion, which supported classification of the account as an NPA in November 2020, and instead relied on an inconclusive opinion from a private Chartered Accountant. It also relied on the OTS Scheme's provision that the statutory auditor's report would prevail in case of a discrepancy with the Core Banking System records.
Accordingly, the Court allowed the petition and directed the bank to consider the petitioner's OTS proposal under the 2024 scheme, treating the loan account as an NPA from November 2020, subject to the petitioner submitting an application.
Date of Decision: 25.09.2026