2020: When RBI declared a loan moratorium amidst the pandemic

Several businesses were hit badly, following the outbreak of COVID-19 and the subsequent lockdown.

With the job market being shaky due to the above-mentioned reasons, the Reserve Bank of India (RBI) had on March 27 issued a circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1, 2020, and May 31, 2020, due to the pandemic. Later, the moratorium was extended till August 31 this year.

This decision would be applicable to all regional, rural, cooperative banks an NBFCs including Housing Financing Companies, the RBI had said. The final decision on whether to pass it on to the consumer is the decision of the bank, the RBI said.

A moratorium period is a time when the borrower is not required to make any repayment. The RBI said that this would not result in asset classification downgrade and will not have adverse impact on the credit history of the borrowers.

Subsequently, the moratorium period was extended, but some borrowers approached the Supreme Court seeking waiver of the interest during the moratorium period. On November 27, the Supreme Court directed the government to implement its decisions to forego interest on 8 categories of loans. The government was told to ensure that all steps are taken to implement its decision to forego interest on eight specified categories of loans paid upto Rs two crore in view of the coronavirus pandemic.

COVID-19 pandemic has not only caused serious threat to the health of the people but has also cast its shadow on the economic growth of the country as well as other countries in the entire world, the Court said.

The eight categories of loans are MSME (Micro, Small & Medium Enterprises), Education, Housing, Consumer durable, Credit card, Automobile, Personal and Consumption.

"Due to lockdown imposed by the Government of India in exercise of powers under the Disaster Management Act, 2005, there can be no denial that most of the businesses including private sector as well as public sector has been adversely affected.

"For several months, large number of industries were not allowed to function and exemptions were granted only to few of the industries to run and carry on its activities, which were found essential and necessary in the fact situation," the bench, also comprising Justices R S Reddy and M R Shah, said.

Although, gradually, due to Unlock- 1, 2 and 3, the industries and other business activities have been restored and the economy of the country is on track, although at a slow pace, it said.

The Court noted that moratorium period as granted by the Reserve Bank of India have continued from March 3 to August 31 for the period of six months.

It noted the submission of Solicitor General Tushar Mehta that measures taken by the Centre in exercise of jurisdiction under the Disaster Management Act, 2005 to mitigate the hardships and miseries of few sectors.

"As noted above, senior advocate Rajiv Dutta, counsel for the petitioner has expressed its satisfaction on the measures taken by the Government of India redressing grievances of the petitioner to the extent as noted above.

"We dispose of the present writ petition with directions to the respondents to ensure that all steps be taken to implement the decision... so that benefit as contemplated by the Government of India percolates to those for whom financial benefits have been envisaged and extended," it said.

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The pleas pertained to charging of interest on interest by banks on EMIs which have not been paid by borrowers after availing the loan moratorium scheme of RBI during March 1 to August 31.