Loan moratorium? Here’s what’s likely to happen to your bank liabilities

Srinagar: : The Supreme Court on Thursday asked the Centre to consider a plea for not charging interest on interest on deferred EMIs during the moratorium period and also not downgrade the credit/asset classification of the borrowers.

A bench of Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah asked the Centre, the Reserve Bank of India and the banks to put their heads together within two weeks to decide on crucial issues — sector-specific loan restructuring, charging of interest on interest, etc — and then come up with a concrete decision.

While the apex court has already extended the loan moratorium repayment till September 28, it may eventually be extended till December, and there are multiple reasons to believe it.

Recently a petition was filed in the Supreme Court seeking directions to all the banks to extend loan moratorium till December 31.

While the country is going through a rough phase, the loan moratorium extension till December will ensure the economy is able to recover and the borrowers are in a position to pay back their loans. The extension will only be applicable to EMI repayment on term loans.

The Supreme Court last week directed banks not to declare loan accounts, which were not under default till August 31, as non-performing assets (NPAs), until further orders.

A bench comprising Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah said: “At the request of Tushar Mehta, Solicitor General, the matter is adjourned for September 10… Harish Salve, senior advocate, submitted that no account shall become NPA at least for a period of two months. In view of the above, the accounts which were not declared NPA till August 31, shall not be declared NPA till further orders.”

The bench was hearing a batch of pleas challenging the interest on interest on the deferred EMIs during the moratorium.

The businesses are slowing regaining momentum, and the economy is getting back on its feet. While it may take some more time for the situation to get back to normal and it will probably mean the apex body may extend the loan moratorium till December.

On March 27 RBI permitted all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) to allow a moratorium of three months on payment of EMIs and installments in respect of all term loans outstanding as on March 1, 2020.

Later in May, the RBI again announced an extension of loan moratorium by another three more months to August 31.

Now whether loan moratorium extension till December will be approved or not, there are high chances it will be further extended. With SC hearing deferred till September 28, repayers are getting another additional month. NPA declaration has been extended by another two months, and hence eventually loan moratorium extension till December may happen.

The government has set up a special panel to assess the waiver of interest, and interest on interest on loans. The panel will look into the concerns raised after multiple petitions were filed seeking relief from interest levy on loan repayments deferred. The six-month loan moratorium extension was mandated by the Reserve Bank of India.

The panel will be chaired by former Comptroller and Auditor General Rajiv Mehrishi, Ravindra Dholakia, former professor at IIM Ahmedabad and B Sriram, former managing director of State Bank of India.