The Reserve Bank of India filed an affidavit in the Supreme Court rejecting the demand of various sectors, including real estate, for extension of loan repayment moratorium that was granted from March 1 till August 31 citing pandemic-caused depressed economic activity.
It also requested the SC to vacate its earlier order putting a blanket ban on lenders from declaring defaulting loan accounts as NPA, thus freezing initiation of recovery proceedings. “If the stay is not lifted immediately, it shall have huge implications for the banking system, apart from undermining the regulatory mandate of the RBI,” it said.
RBI’s move came hours after the Centre said it would not be possible to add to the already announced financial relief packages and urged the court against getting into sector-specific financial assistance.
The regulator for banks and non-bank finance companies told the apex court that the moratorium was an immediate regulatory measure to tackle an urgent situation and provide reprieve to borrowers affected by the pandemic, but without compromising the vitals of the financial system. “It entails significant costs to the lenders and a balance needs to be maintained in the overall consideration,” it said.
Objecting to any extension of the six-month moratorium, the banking regulator said, “A long moratorium exceeding six months can also impact credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments. It may result in vitiating the overall credit discipline which will have a debilitating impact on the process of credit creation in the economy. It will be the small borrowers which may end up bearing the brunt of the impact as their access to formal lending channels is critically dependent on the credit culture.”
Referring to its August 6 Resolution Framework, RBI said it was meant to help those non-defaulting borrowers who faced difficulty in repayment only because the pandemic caused financial stress and not aimed at helping chronic defaulters.