Loan moratorium: RBI urges SC to lift order NPA accounts

New Delhi, Nov 05: The Reserve Bank of India (RBI) has urged the Supreme Court to lift its interim order, which had held that accounts not declared as non-performing assets till August 31 this year are not to be declared NPAs until further orders.

The RBI told the court that it is facing difficulties due to the directive and hence the interim order be lifted.

In an affidavit earlier this month, the RBI had said it is not possible to give more relief to the sector affected by the coronavirus pandemic. The RBI also said in the fresh affidavit filed before the Supreme Court that it is not possible to extend the moratorium period beyond six months.

A long moratorium exceeding six month may result in vitiating the overall credit discipline which will have a debilitating impact on the process of credit creation in the economy. It could increase the risks of delinquencies post resumption of scheduled payments and exacerbate the repayment pressures for the borrowers, the RBI also said.

On specific reliefs such as for the real estate and power sector, the RBI said that these were already stressed prior to the pandemic on account of various factors. The travails of the real estate sector cannot be solved through banking regulations.

An account which was impacted by pandemic as well as had a pre-existing 10 financial has a different risk profile as compared to an account without pre-existing stress and to treat both borrowers on equal footing would be gross suspension of economic sensibilities," the RBI said on the demand by certain petitioners who sought resolution of their loans overdue beyond 30 days as on March 1 2020.

In this context, it is submitted that the Reserve Bank has only provided an enabling mechanism for the lenders to permit the moratorium, without the same being treated as restructuring of the terms of the loan contract for regulatory purposes, the RBI said on the issue raised by the petitioners against the moratorium circular, which they said was not automatically available to all borrowers, but contingent on the discretion of the lenders.