The Delhi High Court has held that YES Bank should not have classified a loan account as Non Performing Asset (NPA) when delay in payment of installments was caused due to the conditions brought about by the effects of COVID19.
"Prima facie, I am of the view that the classification of the account of the petitioner as an NPA on 31.03.2020 could not have been done by the respondent. Accordingly, status quo ante is restored qua the classification of the account of petitioner and the account classification as it stood on 01.03.2020 shall stand restored", Justice Sanjeev Sachdeva ordered.
The Single Bench of Justice Sanjeev Sachdeva noted that as per RBI's guidelines, the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020.
As per the Petitioner, it had availed loan facilities to the tune of Rs. 1570 crores out of which, petitioner has repaid about Rs. 1056 crores apart from interest running into hundreds of crores.
The Petitioner had contended that the instalment for repayment which fell due on 01.01.2020, which is the subject matter of the present petition, could not be paid because of adverse economic conditions brought about by the effects of COVID-19 pandemic.
It was further submitted that COVID -19 Regulatory Package issued by Reserve Bank of India on 27.03.2020, on account of COVID -19 Pandemic, provides for re-scheduling of the payments – term loans and working capital facilities.
Moreover, the Petitioner argued, that in view of the pandemic COVID-19, RBI has issued several guidelines and advisories and brought into place regulatory policies to give benefit to the borrowers to ease the financial crisis.
On the other hand, YES Bank had submitted that in terms of the Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India, if an instalment is overdue by a period of 30 days, the borrower's account is classified as Special Mention Account – 1 (SMA-1) and if the instalment is overdue by 60 days, the account is classified as Special Mention Account – 2(SMA-2) and if the instalment is overdue by a period of 90 days, the account is classified as Non-performing Asset (NPA).
Therefore, the Respondent bank argued, since the instalment was not paid till 31.03.2020, the account of the Petitioner was liable to be classified as NPA. It was further submitted by the Respondent bank that in terms of the IRAC Guidelines, particularly paragraph 4.2.2, banks had put into place an automated system whereby the accounts are classified automatically by the system in the event of default as noticed hereinabove.
It was also argued by the Respondent bank that RBI guidelines and package are not applicable to the case of the Petitioner, in as much as, the petitioner was already in default as on 01.03.2020 and the package is applicable only to those instalments which fall due on 01.03.2020 and also only to those borrowers who were properly servicing their account till 01.02.2020 and were not in default.
However, the Respondent bank had admitted that Statement on Development and Regulatory Policies issued by RBI on 27th March, 2020 along with Regulatory Package issued on March 27, 2020 is applicable to the Respondent.
While holding that the classification of Petitioner's account as NPA was wrong, the court directed the Petitioner tob pay on or before 25.04.2020, the instalment which fell due as on 01.01.2020 along with interest accrued thereon till the date of the payment irrespective of the lockdown position.
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