Loan moratorium cannot be extended beyond August 31, 2020: CS on loan waivers

The court refused to interfere with the Center and RBI’s decision not to extend the loan moratorium, saying it was a political decision.

In relief for borrowers, the Supreme Court on Tuesday ordered that no compound or criminal interest be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and that the amount already invoiced is refunded, credited or adjusted.

The Supreme Court refused to interfere with the Center and the Reserve Bank of India’s (RBI) decision not to extend the moratorium on loans beyond August 31 last year, saying it was was a political decision.

A bench led by Judge Ashok Bhushan said the highest court cannot conduct judicial review of the Centre’s financial policy decision unless it is bad faith and arbitrary.

The Supreme Court said it could not interfere with the government’s decision to set relief priorities during the pandemic that hit the whole country and the government was under severe financial constraints.

The judiciary said so in its verdict on a batch of appeals filed by various professional associations, including from the real estate and electricity sectors, asking for an extension of the moratorium on loans and other relief due to the pandemic.

The RBI had published on March 27 the circular which authorized credit institutions to grant a moratorium on the payment of maturities of term loans maturing between March 1, 2020 and May 31, 2020, due to the pandemic. Later, the moratorium was extended until August 31 of last year.

In its verdict, the highest court said that from various measures taken by the government, it cannot be said that the Center and the RBI did not consider relief for the borrowers.

The bench said he could not overturn a political decision simply at the request of the petitioners on the grounds that the other point of view is possible and the other decision might be more beneficial.

While refusing to enter into the government’s financial policy decision, the judiciary said it was not open to the court to engage in judicial review of the policy decision simply at the petitioners’ request.

He said a full interest waiver is not possible as it will have huge financial implications. The Supreme Court had reserved its judgment on the batch of pleas on December 17 of last year.

The Center had previously submitted to the highest court that if it considered waiving interest on all loans and advances to all categories of borrowers for the six-month moratorium period announced by RBI, the amount lost would be more than Rs 6 lakh. crore.

If banks were to bear this burden, it would necessarily erase a substantial and major portion of their net worth, rendering most lenders unsustainable and raising a very serious question mark as to their very survival, he said.

The government had said that this was the main reason why waiving interest was not even considered and that only the payment of installments was deferred.

As an example, he said that in the case of the State Bank of India alone, waiving six months of interest would completely erase more than half of the bank’s net worth accumulated over nearly 65 years. of existence.

He highlighted the sectoral relief measures taken by the government for small and medium enterprises / MSMEs, including in sectors such as catering and hotels.

The Center enacted a Rs 3 lakh crore Emergency Credit Linked Guarantee (ECLGS) program providing additional credit at a lower interest rate, with a 100% government guarantee and no new collateral, he said. .

The program has been extended with higher financial limits to twenty-seven sectors affected by COVID-19, including the restaurant and hospitality sectors, he said.

On November 27 of last year, the highest court asked the Center to ensure that all measures are taken to implement its decision to waive interest on eight specified categories of loans paid up to Rs 2 crore. due to the pandemic.

The eight loan categories are MSMEs (micro, small and medium enterprises), education, housing, sustainable consumption, credit cards, automobile, personal and consumer.

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