NEW DELHI: In a major relief to individual and commercial borrowers, the Supreme Court on Thursday asked banks not to declare any loan account as non-performing asset (NPA) till it passed further orders on a bunch of petitions questioning levying of interest on loans during the six-month repayment freeze that ended on August 31.
When the Indian Bankers Association offered a two-month moratorium on declaring a non-serviced loan account as NPA, a bench of Justices Ashok Bhushan, R S Reddy and M R Shah passed this interim order restraining banks from declaring loans as NPAs to protect borrowers, who are facing difficulties in arranging funds for loan repayment.
“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 said. The SC will resume hearing on the petitions on September 10.
Banks can declare a loan NPA if the principal or interest component is not serviced by the borrower for 90 days. Once a loan is declared NPA, banks can resort to recovery processes, including selling mortgaged property.
Borrowers have argued that they earned virtually nothing from their businesses during the last six months of lockdown and yet were saddled with interest as well as interest on interest accrued on the deferred instalments. They said once the moratorium period ends, they would be saddled with all the deferred instalments along with compound interest, making it difficult to pay, and banks could declare their loans as NPAs.
As representatives of several sectors narrated their woes during the lockdown period, the Confederation of Real Estate Developers’ Association of India (Credai), through senior advocate Kapil Sibal, said the attempt of both the Centre and the RBI appeared to be solely to protect the interest of banks and lending institutions.
Sibal said the economic downturn had seriously impeded activities of the real estate sector and Credai’s 1,400 members as well as 270 ancillary industries dependent on the real estate sector were badly affected. The Centre, RBI and the IBA had failed to come out with any relief package for the real estate sector, he said and supported the demand of other petitioners for waiver of interest as well as interest on interest on repayment of loan instalments during the moratorium period.
Appearing for the IBA, which has 247 banks as its members, including SBI, senior advocate Harish Salve promised the court that no loan account would be categorised as NPA for the next two months, that is till October 31 whether or not the repayment default exceeded the 90-day deadline.
For the Centre and the RBI, solicitor general Tushar Mehta said the banking regulator, in consultation with experts, has decided that the residual tenure of loans could be extended by up to two years, with or without including the six-month moratorium period from March 1 till August 31. Mehta narrated several financial packages announced by the Union government for different industrial sectors to help revive the economy. However, he said waiver of interest would have a crippling effect on the banking industry and impact interest on deposits in 194 crore accounts.