The Supreme Court attended to the hearing on loan moratorium today which has been getting adjourned from one hearing to another.
Currently, the hearing stands adjourned to November 2 with no decisions reached today.
The issue has its birth in the pandemic COVID-19 triggered lockdown where almost everyone was forced within their four walls and the entire economy was brought to a standstill.
The government had agreed to waive “interest on interest” of certain categories of loans. Initially, the government denied any such waiver because doing so would have hurt the survivability of the banks underwriting the loans. Upon intervention of the Supreme Court, and its guidelines to consider the situation and help the borrowers, the government came up with a plan.
The rationale put forward by the government when the borrowers were given permission to seek a six-moratorium on all loans due to the pandemic was that the lending institutions’ survivability would have become a question if they went along with the proposal.
If all the categories of the borrowers were given the relief, then the amount would be about Rs 6 lakh crore. Such an amount would deal a severe blow to the net worth of the banks. However, if the benefit was extended to a select list, then about Rs 2 lakh crore will be the burden on the banks.
Later on, the RBI, in a fresh affidavit filed to the Supreme Court, claimed that it is unable to extend loan moratorium beyond the six-month period.
The rationale provided is that such a move “may result in vitiating the overall credit discipline which will have a debilitating impact on the process of credit creation in the economy”. The RBI further said that the move can “increase the risks of delinquencies post resumption of scheduled payments”
The hearing yesterday had no progress and it was adjourned to today.
Today, there was progress, but the hearing has been adjourned to November 2.
The Supreme Court challenged the government as to why there was delay in implementing the waiver of Rs 2 crore and why time till November 15 is being requested, to which the government replied that the process is complex and will take time.
The government claimed that the deadline requested is an outer limit, the needful will be done before that date, while noting that the government has taken a huge burden on itself and will not be causing any delays.
The Supreme Court observed that while there is a delay, the lenders are charging “interest on interest”.
The government assured that the borrowers are protected from being classified as Non Performing Assets (NPAs)
Interestingly, on a lighter note, the Supreme Court remarked that the common man’s Diwali is now in government’s hands.
26/n
— Ashmit Kumar (@AshmitTejKumar) October 14, 2020
SC Observes (In lighter vein) -
Borrower's Diwali is in the hands of the Govt.