Loan Moratorium- Resolution Framework For COVID-Related Stress More Restrictive Than Prudential Norms For Normal Times: SC Told

In the course of the hearing in the loan moratorium matter, the Supreme Court was informed on Thursday, on behalf of an industry group, that the interests of borrowers have been dealt with in a "slipshod manner" and not "with as much sympathy as was expected", by the Union of India and the RBI.Senior Advocate Ravindra Srivastava, for the group, told the bench of Justices Ashok Bhushan, R. Subhash Reddy and M. R. Shah that the banks are "prevailing over" the government and the RBI and "making huge profits"."Any relief under the Disaster Management Act will involve costs. They can be no relief without costs", he advanced.As regards the mitigation measures qua the borrowers of the lending institutions, he indicated that the March 27 circular of the RBI had allowed for a moratorium for a period of three months initially, which was again extended by three months, making it a total of six months. He pointed out that the circular says that interest will not continue to run and will be accumulated and, secondly, that there will be interest on interest. "This is what is bothering the borrowers. Your Lordships need to examine the legality of these measures, considering that the RBI itself has said that this provision of interest on interest is in the nature of penal interest. Whether under the DM Act it can be done? No authority is looking into the grievance of borrowers...", he remarked.He explained that the government of India and the RBI have come up with two-fold measures, the first being the October 23 scheme by virtue of which compound interest on loans up to Rs. 2 crores has been waived, and secondly, the resolution package suggested by the RBI vide its August 6 circular.Mr. Srivastava argued that while the Kamath committee had mentioned 26 sectors as having been severely-impacted during the Covid pandemic, the waiver of compound interest has been extended to only eight segments of borrowers. "The 26 sectors include the power and the real estate sectors, as against yesterday's argument (by Senior Advocate Harish Salve for the Indian Banks Association) that these two sectors are not 'persons affected by disaster' (for the purpose of the DM Act...now only 8 segments have been extended the benefit. This classification of the amount of loan is discriminatory and arbitrary. But this submission was not answered", he said.As regards the resolution framework for COVID-related stress under the RBI circular, he argued that this measure is much more restrictive and "nothing at all has been given".RBI Circular on Prudential Norms for Resolution v/s RBI Circular on Resolution Framework for COVID-related StressHe took the bank through the RBI circular on prudential norms which deals with stress loans in normal circumstances dehors the Covid pandemic. He pointed out that the prudential norms do not provide any classification of borrowers, sector wise or segment wise. There is no time-limit for the invocation of the resolution plan. By way of another radical difference, he pointed out that under the COVID circular on resolution packages, it is only the banks on their own, when they notice that an account is under stress, suo motu start action against the borrower and suggest resolution, and that the borrowers cannot themselves apply for the invocation.As regards the scope of the solution under the prudential norms which govern the resolution and restructuring in normal times, he pointed out that the relief measures include the reduction of the payable amount, reduction of the instalments and the rate of interest can be reduced, a sanction of additional credit facilities and compromise settlements where the time for payment exceeds three months.Taking the bench through the August 6 circular of the RBI, Mr. Srivastava showed that the resolution plan may include only rescheduling of payments, conversion of the interest accrued as another borrowing facility, grant of a moratorium for a maximum of two years. "Your Lordships, please look at how restricted it is as compared to the measures the prudential norms contemplate", he advanced.'SBI, largest lender in the country, only offering moratorium, and that too at an additional interest, with further restricted eligibility'Next, he walked the bench through policy circular issued by the SBI in pursuance of the August 6 RBI circular- "No other bank has placed its policy on record. We can only look at the SBI policy. And even in this case, nowhere is it stated that the board has approved this policy"As regards personal loans, he showed that the scope of the resolution plan, so far as the SBI is concerned, is moratorium up to 24 months where income is affected; rescheduling of payments for a maximum of two years; and their proposal to charge 35 BPS as additional interest on all loans concerned under the framework."So the only relief by the SBI, the biggest lender in the country is moratorium. And they are not only charging interest but also additional interest. Their submissions before ...

Loan Moratorium- Resolution Framework For COVID-Related Stress More Restrictive Than Prudential Norms For Normal Times: SC Told

Mehal Jain

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