SC: Implement waiver by 2 Nov3 min read . Updated: 15 Oct 2020, 06:08 AM IST
- RBI clarified that loans in default for over 30 days as on 1 March won’t be eligible for a debt recast even if a part of it was repaid later
The Supreme Court on Wednesday declined to give the government a month to implement a waiver of compound interest on loans of up to ₹2 crore, saying it expects the government to implement the proposal by 2 November.
“The common man’s Diwali is now in the hands of the government," the court said, adjourning the case till 2 November. “We will expect the implementation of the government’s decision on interest waiver by then. We will review the implementation of the waiver."
The Centre on 2 October told the court it will bear the cost of ‘interest on interest’ for loans of up to ₹2 crore taken by individuals and small businesses. The loans eligible for the proposed waiver are those that qualified for an RBI-mandated repayment moratorium.
At Wednesday’s hearing, solicitor general Tushar Mehta, representing the Centre, said the waiver would come into effect by 15 November.
Justice Ashok Bhushan, heading the bench, responded, “Why one month’s time to implement such a small decision? Benefits of government’s concessions to borrowers up to ₹2 crore must be implemented as soon as possible."
“It’s not fair on Centre’s part to take a month to implement the decision," Bhushan added.
Mehta submitted before the bench that he had mentioned 15 November as the outer limit and assured the court the government will try to implement the waiver earlier than that.
Petitioners for individual borrowers said banks have been levying interest on interest and wanted this stopped.
The apex court bench, also comprising Justices R. Subhash Reddy and M.R. Shah, said since the government has already exempted small borrowers from paying compound interest, these amounts should not be debited from their accounts.
Senior advocate Harish Salve, representing the banks association, said lenders are waiting for an RBI circular. However, he assured the top court that the government’s decision would be implemented and that if any wrongful debt occurs in the interim, it shall be reversed by banks.
In March, RBI allowed a three-month moratorium on repayment of all term loans due between 1 March and 31 May. On 22 May it extended the moratorium on term loans till 31 August amid the lockdown.
Separately, RBI clarified loans that were in default for more than 30 days as on 1 March will still not be eligible for a debt recast even if a part of the dues was repaid by the borrower later,
RBI released a set of frequently asked questions along with its responses late on Tuesday night, clarifying its stand on a number of issues. RBI has set 1 March as the reference date for deciding eligibility of borrowers under the new resolution framework.
“Such accounts are ineligible for resolution under the resolution framework as the resolution framework is applicable only for eligible borrowers, which were classified as standard, but not in default for more than 30 days as on 1 March," it said, adding banks will have to use the 7 June 2019 circular to recast such loans.
Ever since the debt recast window was announced, bankers have maintained they are open to using the 7 June framework for stressed assets ineligible under the new framework. However, what sets apart the new framework from the existing one is the benefit of retaining a standard asset classification despite a recast, leading to lower provisions. Banks have to make provisions of 15% when loans turn bad, as opposed to 0.4-1% for standard loans. Mint reported that at least ₹5.7 trillion stressed loans will not be covered under the framework.
RBI also said while 1 March is the reference date, the actual debt considered for resolution will be the amount outstanding as on the date of invocation. The date of invocation refers to the date when the borrower and the lender agree on the resolution plan and RBI has set a deadline of 31 December.