Loan Moratorium: Any more relaxations will hurt economy, govt tells Supreme Court

The government has told the Supreme Court that it saw no possibility of giving any further broad-based debt relief to different sectors. It said the measures already announced, including compounding interest waiver for loans up to Rs 2 crore for specified borrowers including MSMEs and individuals, are adequate enough. “There is no necessity for additional steps such as blanket loan moratoriums or interest waivers..” the government stated in a fresh affidavit.

The apex court had earlier observed that the Centre’s offer to waive “interest on interest” on loans up to Rs 2 crore was “not satisfactory”. It also asked the government and RBI to place on record the actions taken on KV Kamath committee’s report on debt restructuring and also urged the duo to consider the relevant “issues raised by the real estate associations and power producers”.

The government has reiterated that the banks are fully empowered to resolve Covid-19 related stress and customise relief to individual borrowers, other than big borrowers, through grant of various concessions/reliefs, in terms of alteration in the interest rate or by taking haircuts.

On Friday, the RBI, too, had stated in an affidavit that banks have sufficient leeway to accommodate the impact of Covid19 while stipulating specific ratios for determining eligibility of loan resolution under the special window notified by it on September 7. Also, the lenders have been given the freedom to accommodate sector-specific characteristics.Under the RBI’s special window, lenders are allowed to recast stressed retail and corporate loans without classifying them as non-performing, provided that they set aside 10% provisions on such advances.

The apex court will hear the case next on October 13.

Maintaining its discretion on fiscal policy, the Centre in the new affidavit said the decision to waive compound interest was taken in context of the pandemic to help vulnerable borrowers. It said the series of measures announced through Aatma Nirbhar Bharat scheme and Garib Kalyan scheme were adequately addressing problems faced by borrowers.

Pointing to sector-specific pandemic related relief already being provided by RBI and the Union government, the Centre told the court that decisions on expenditure commitments are taken based on well-set procedure.“More than  Rs 90,800 crore liquidity injection for power distribution companies has been sanctioned, substantially enabling power distribution companies to pay their outstanding dues to power producers and transmission companies,” the government said.

“All the decisions taken by the central government, the RBI as a regulator and the lending institutions are taken keeping in mind the severe financial stress globally as well as nationally and while ensuring that the sources are utilised so that the national economy and the economy of the banking sector can withstand the present financial situation, the duration of which is unknown,” the affidavit said.

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