Loan Moratorium: RBI's Resolution Framework Not Practical, Petitioner Tells SC [Read Written Submissions]
One of the Petitioners in a batch of writ petitions challenging the RBI's loan moratorium measures as inadequate has requested the Supreme Court that there should be a 'grievance cell' at every bank, to address the grievances of a Borrower in relation to the the outcome of restructuring resolution plan submitted by the borrower. The submission has come in response to the RBI...
One of the Petitioners in a batch of writ petitions challenging the RBI's loan moratorium measures as inadequate has requested the Supreme Court that there should be a 'grievance cell' at every bank, to address the grievances of a Borrower in relation to the the outcome of restructuring resolution plan submitted by the borrower.
The submission has come in response to the RBI Circular dated August 6, whereby RBI has stipulated that a borrower can request Bank for modification in the repayment and service of their existing loan, which shall be subject to the approval of all respective Bank/ Lending Institutions.
Concerned by the moratorium circulars being discretionary and not mandatory, the Petitioner has urged the Court to issue directions for establishment of a grievance cell, comprising of a member of RBI, Bank and independent directors.
"This RBI's circular is with so many riders which are conditional and time consuming and do not provide any surety to Borrower for getting moratorium relief timely. Further it is fully dependent on Bank's decision," the affidavit filed by Advocate Vishal Tiwari, the petitioner-in-person, stated.
He has also urged the Court to instruct the Central Government/ Lending Institution to set up a mechanical/ computer-based process, under which Borrowers can track their request of resolution and status of resolution plan online.
As per the Petitioner, the current restructuring mechanism throws lots of questions on its practicalities, in timely implementation and giving relief to customers adversely affected by Covid-19, as well as saving Lending Institution future to remain in business by avoiding unnecessary and unviable NPA.
He has averred the following challenges to the proposed plans:
- Considering the numerous loan account, whether Lenders will be able to assess each & every cases on merit and take appropriate decision timely by 31st December 2020?
- The Policy announce is too late considering the moratorium period expired on 31/8/2020. There is no time left for the borrower to do something and come out from such massy situations.
- The policies are not made keeping in mind small Borrowers who do not have higher educational background, separate finance departments or the required expertise etc. to fulfill the detailed requirements that Banks may need to form up per the RBI policy.
- All the personal loans were sanction by the Lenders based on customer's historical financial data, which does not impose any subjectivity on processing officer to approve the Loan. However, in proposed RBI Policy, every Borrower need to submit their projected cash-flow.
- In the above uncertainty situation of pandemic, how it will be feasible for Borrowers to prepare and provide projections as well as Bank can assess the same at this point of time.
- The proposed scheme is totally unviable for the Banks / Lending Institution to restructure loans of Borrower, since Banks / NBFC/Lending Institutions needs to provide 10% provision for the amount restructured. Thus, these lending institutions will re-structure only selective loans and leave out MSMEs and SMEs which are actually in desperate need of Government support.
- 10% provisioning will also impair Banks profitability and financials strength to lend subsequently.
Inter alia, the Petitioner has questioned why the RBI has proposed 2 years of moratorium in their scheme wen they have claimed that it shall impact the credit behavior of borrowers?
Further, he has urged that the moratorium period be extended till December 31, 2020 due to "non-preparedness of the RBI and Lending Agencies".
Recommendations of Kamath Committee
The Petitioner has expressed surprise that the Kamath Committee suggested certain ratios which the lending institutions already uses for last several years.
"The Committee has just made certain changes, which are total illogical and unthoughtful. These ratios ate good for theory but will have no meaningful contribution in resolving the financial problems being faced by the Borrowers due to pandemic of Covid-19, rather it will create hurdle in arriving resolution for business people.
Every case will be unique and cannot be fit to any fixed parameters. Restructuring will be requiring for two aspect of business; one is already running and other one is under implementation of projects. But nothing has been discussed in this regard in the said circular," the affidavit states.
Background
The Resolution Framework issued by the Reserve Bank on August 6, 2020 is aimed at facilitating revival of real sector activities and mitigating the impact on the ultimate borrowers, which are under financial stress caused by economic fallout on account of Covid-19 pandemic. In terms of the Resolution Framework, only those borrower accounts shall be eligible for resolution which were classified as standard, but not in default for more than 30 days with any lending institution as on March 1, 2020.
The resolution plans implemented under framework may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower for two years. The reliefs for each borrower can be tailored by banks to meet the specific problem being faced by each borrower depending on need rather than have a broad- brush approach in dealing with the issue.
Read Written Submissions