The Supreme Court has been hearing cases by video conference since March of last year due to the COVID-19 pandemic and several bars and lawyers have called for physical hearings to resume immediately.

Ending an intense legal battle that has lasted several months, the Supreme Court on Tuesday refused to change the broad outlines of the six-month moratorium on loans linked to Covid by accepting the government-RBI duo believes that full interest relief for all categories of borrowers would put the banking system at risk. He also refused to extend the six-month moratorium period that ended on August 31, given the interests of depositors, banks and the financial sector as a whole.

The Supreme Court also overturned a September 3, 2020 stay order that prevented banks from reporting NPA loan accounts that were not classified as NPAs until August 31, 2020. Economic policy decisions were best left to the government, declared the court and declared that the moment we passed the test of lack of arbitrariness.

However, the court extended the compound interest exemption, which in an October 2020 government directive was limited to loans up to Es 2 crore, to all borrowers, saying no distinction could be made. between small and large borrowers. Icra said the move could cost a total of 13,500 to 14,000 crore rupees if the government agrees to foot the bill. Since the compound interest exemption for borrowing up to Rs 2 crore, which is estimated to cost around 6,500 crore to the treasury, the additional cost due to the latest ruling could be 7,000-7,000 crore. 500 crore rupees, the rating agency said.

Nonetheless, the Supreme Court’s ruling was a relief for the banking industry and the financial industry as a whole, as a blanket waiver of interest or an extension of the recovery period would have come as a big shock to them. The banks expressed apprehension about the position of the SC, which had made numerous observations during the hearing of the case, showing its concern for the heavy interest burden weighing on borrowers affected by the economic crisis, in particular real estate and electricity companies.

Bank stocks won thanks to the verdict: Smart bank The index closed at 34,184.4 on Tuesday, up 1.73% from the previous close.

The government and the RBI had consistently opposed a blanket interest waiver on all loans and advances made to borrowers during the six-month moratorium period that ended on August 31, saying “it will mean waiving to an amount estimated at more than 6 lakh crore ”. . At one point, the government told the court that in the case of National Bank of India On its own, waiving six months of interest would totally wipe out more than half of the bank’s equity it has accumulated in its nearly 65 years of existence.

In the latest order, the SC banned lenders from charging interest on interest / compound interest / penalty interest during the six-month loan moratorium period between March 1 and August 31, 2020.

Dismissing a batch of petitions calling for an extension of the loan moratorium period and other relief measures, the tribunal composed of Justices Ashok Bhushan, R Subhash Reddy and MR Shah said a full interest waiver during the moratorium period cannot be granted because banks have to pay interest to depositors, retirees, etc. and this “would have a far-reaching financial implication in the economy of the country as well as the lenders / banks”.

“Therefore, when a conscious decision has been made not to forfeit interest during the moratorium period and a political decision has been made to grant relief to borrowers by postponing payment of down payments and so many others reliefs are offered by RBI and subsequently by bankers independently… court interference is not necessary, ”the judiciary said.

“Simply, since the relief announced by the UoI / RBI may not suit the desires of the borrowers, the policy relief / decisions related to Covid-19 cannot be considered arbitrary and / or contrary to Article 14 of the Constitution of India, ”he said.

“However, it is ordered that there is no interest charge on interest / compound interest / penal interest for the period during the moratorium and any amount already collected under the same head, namely, interest on interest / penal interest / compound interest will be refunded to affected borrowers and will be credited / adjusted at the next installment of the loan account, ”the Supreme Court said.

In October last year, the government granted an interest waiver on loan interest of up to just 2 crore in order to support individual borrowers and medium, small and microenterprises (MSMEs) during the epidemic of Covid. In addition to MSMEs, loan relief was intended for personal loans, housing, education, automobiles and consumer durables, and credit card contributions. However, the government then ruled out any exemption for large borrowers, saying it would have an impact on the interests of depositors.

The SC noted that the Kamath committee had looked into sectoral issues and that its recommendations had been widely accepted by the RBI in its circular of September 7 which provided for a separate threshold for 26 sectors, including electricity, real estate. and construction. “… Each sector may have suffered differently and therefore it will not be possible to provide sector / sector specific relief. Petitioners cannot seek sector specific relief through waiver of interest or restructuring through this proceeding under Section 32 of the Indian Constitution and the issue of such financial stress management measures requires consideration. consideration and consideration of several financial parameters and their impact, ”the judgment said.

The petitioners, including real estate and power companies, argued that a standard account should not have been declared NPA, when the moratorium was in effect. “Accounts of eligible borrowers should continue to be classified as ‘standard,’ said Kapil Sibal, who appeared for the body of realtors Credai had argued, adding that the Kamath committee has been set up to regulate settings between borrowers and lenders, and “it has nothing to do with the Covid-19 disaster”.

On March 27 of last year, RBI announced a moratorium on loan payments due between March 1 and May 31 and subsequently extended it for three months until August 31, 2020.

The decision of the SC intervened on a batch of appeals filed by the electricity sector and real estate organizations, professional associations and individuals demanding an extension of the moratorium beyond August 2020.

The Kamath committee set up by the RBI recommended financial parameters for the debt restructuring of 26 sectors affected by Covid-19. For corporate accounts (other than MSMEs with exposure of up to 25 crore) that were past due up to 30 days as of March 1, 2020, the August 6, 2020 framework provides lenders and borrowers with various avenues to ‘ensure sustainability. At the same time, the prudential framework of June 2019 remains available for cases not covered by the framework of 6 August.