Delhi High Court Says Yes Bank Can’t Declare Anant Raj As NPA Due To Covid-19 Crisis

The Delhi High Court said Yes Bank Ltd. cannot classify a real estate developer’s account as non-performing asset for its failure to repay dues on account of the coronavirus outbreak.

Anant Raj Ltd. argued that it defaulted on the payments due on Jan.1 because of the adverse effect of the pandemic on the real estate industry. The developer relied on the Reserve Bank of India’s regulatory policy that allowed banks and financial institutions to impose a moratorium of three months on payment of installments against outstanding loans as on March 1.

The petitioner has already repaid dues worth around Rs 1,000 crore.

Justice Sanjeev Sachdeva, who heard the case via video conference amid a nationwide lockdown to combat spreading of the novel virus, read into the Reserve Bank of India’s measures to ease financial stress on borrowers, and restored classification of Anant Raj Ltd.’s account as it stood on March 1. The developer said it would make the payment by April 25.

Yes Bank, however, argued that according to the RBI’s norms, if an installment becomes overdue by a period of 90 days, the account must be declared as an NPA.

Here’s what the parties argued:

What Anant Raj Said

• The RBI’s Covid-19 regulatory package allowed rescheduling of payments in term loans and working capital facilities, which covers installments falling due from March 1 to May 31, 2020.
• The RBI’s guidelines and advisories have been introduced to give benefits to borrowers by relaxing repayment measures and improving access to working capital.
• It states that rescheduling of payments, including interest would not qualify as a default for supervisory reporting to credit information companies.

What Yes Bank Argued

• The bank classified the account of Anant Raj as Special Mention Account (SMA) 1 and SMA-2 after the January installment remained outstanding for 60 days.
• NPA declaration was sought only after the payment became overdue for 90 days.
• The real estate company failed to repay the installment falling due on Jan. 1 for a period of 90 days. The company must be therefore classified as a NPA as per the RBI’s income recognition and asset classification guidelines.
• Anant Raj cannot claim protection under the RBI’s Covid-19 package and relief measures as it had already under default on March 1. The RBI’s relief is applicable for borrowers who were regularly making payments.
• The RBI’s letter to the Indian Banks Association stated that moratorium cannot be extended to a default prior to March 1.