RBI Asks Supreme Court To Lift Stay On NPA Classification

The central bank has told the Supreme Court that the issues raised by the petitioners in the ‘interest on interest’ waiver case have been adequately addressed and that there’s no scope for further grievance.

In an affidavit filed with the court, the Reserve Bank of India also said the government’s move to bear the compound interest on loans up to Rs 2 crore for the six-month moratorium period, takes care of the primary prayers of the petitioners.

The government had told the court during the previous hearing that the decision to waive compound interest on the “most vulnerable category of borrowers” was taken at the highest levels.

Some petitioners, however, had argued that this didn’t address their concerns, especially those representing the real estate and power generation sectors.

During the hearing, the court had also put on hold declaration of those accounts as non-performing assets which weren’t declared such before Aug. 31. The court will next hear the case on Oct. 13.

RBI Seeks Lifting Of Stay On NPA Classification

The central bank had requested the top court to lift the stay on classification of NPA accounts.

The apex court had, in its order dated Sept. 3, restricted declaring those accounts as NPA which were not NPAs prior before Aug. 31.

The RBI had said not lifting the stay immediately shall have huge implications for the banking system as well as undermine its regulatory mandate.

Have Allowed Lenders To Grant Sector Specific Relief: RBI

The central bank also countered the petitioners’ arguments seeking sector-specific relief in the case.

It said lending institutions are best placed to understand the specific requirements of their counter parties and they’re allowed sufficient discretion factoring in sector specific requirement during the resolution process.

These plans will be subject to the resolution framework for Covid19-related stress of August, 2020, the RBI said.

The central bank also said power generation and real estate sectors were facing stress even before the pandemic, attributing them to sector-specific problems. However, projects which were affected due to the pandemic can be restructured under an already existing framework, it said.

“Nonetheless, it’s submitted that the travails of real estate sector cannot be solved through banking regulations,” the RBI said. “The banking regulations of RBI cannot substitute the addressal of structural problems of the real estate sector.”

RBI Defends Its August Resolution Framework Guidelines

The RBI also defended its decision to include only those accounts in its August resolution framework which were classified as ‘Standard’ but weren’t overdue for more than 30 days as on March 1, 2020.

The rationale behind this decision, the RBI said, was to allow the benefit only to those accounts that were otherwise making timely payments but were affected by the pandemic.

It would require gross suspension of economic sensibilities to grant equal footing to borrowers who were impacted by the pandemic and those with pre-existing financial stress to those who didn’t have a pre-existing stress, the RBI said.

The top court is hearing a batch of petitions which sought relief on interest upon interest for loans which were granted the benefit of the six-month moratorium on account of the pandemic.

On the instructions of the top court, the government decided to bear the cost of compound interest for loans up to Rs 2 crore for this period for:

• MSME loans
• Education loans
• Housing loans
• Consumer durable loans
• Credit card dues
• Auto loans
• Personal loans to professionals
• Consumption loans

The court had during the last hearing asked the government and the RBI to file their responses to grievances highlighted by some petitioners.