SC to hear batch of pleadings on loan moratorium on Wednesday

NEW DELHI: The Supreme Court announced on Tuesday that it would hear a series of motions tomorrow that raised questions about the six-month loan moratorium period announced due to the COVID-19 pandemic.
The pleas were taken to a court made up of judges Ashok Bhushan, RS Reddy and MR Shah, who said he would hear the case on Wednesday.
The highest court hears the motions, including the one that requested an instruction to declare the part of an RBI notification, issued on March 27, “ultra vires to the extent that it charges interest on the loan amount during the period. moratorium … ”
The Reserve Bank of India (RBI) recently filed an affidavit in the Supreme Court claiming that a moratorium on loans exceeding six months could have the effect of “vitiating global credit discipline” which will have a “debilitating impact” on the process of creating credit in the economy.
Separately, the Center also filed an affidavit stating that going beyond fiscal policy decisions already taken, such as waiving compound interest charged on loans of up to Rs 2 crore during a moratorium period. of six months, could be “detrimental” to the Global Economic Scenario, the national economy and banks could not withstand the “inevitable financial constraints”.
These affidavits were filed following the October 5 Supreme Court order asking them to record the recommendations of the KV Kamath Committee on Debt Restructuring Due to COVID-19 Stress on Various Sectors as well as Notifications and circulars issued so far on the moratorium on loans.
In its affidavit, the RBI said any waiver of interest on interest would entail “significant economic costs” which cannot be absorbed by banks without seriously damaging their finances, which in turn would have enormous implications. for depositors and broader financial stability.
He also said that the Supreme Court’s interim order of September 4, restricting the classification of accounts as non-performing accounts in accordance with instructions issued by the RBI, could be overturned with immediate effect.
Previously, the Ministry of Finance filed an additional affidavit in the Supreme Court on October 2, claiming that it had decided to waive the compound interest (interest on interest) charged on loans up to 2 crore rupees for a moratorium of six months for individual borrowers as well. than medium and small industries.
Kamath’s panel made recommendations for 26 sectors that could be considered by lending institutions when finalizing loan resolution plans and said banks could take a graduated approach depending on the severity of the crisis. coronavirus pandemic in an area.
Initially, the RBI issued the circular on March 27 which authorized credit institutions to grant a moratorium on the payment of maturities of term loans maturing between March 1, 2020 and May 31, 2020, due to the pandemic.
Later, the moratorium period was extended until August 31 of this year.
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