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Extension of loan moratorium period may affect credit discipline: RBI to SC

New Delhi: A loan moratorium exceeding six months might result in vitiating the overall credit discipline, which will have a debilitating impact on the process of credit creation in the economy, the Reserve Bank of India has told the Supreme Court.

In an affidavit filed in the apex court in the loan moratorium case, the RBI has said that a long moratorium period could impact credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments.

The banking regulator filed the affidavit in pursuance to the apex court's October 5 order asking the Centre and the RBI to place on record the K V Kamath committee recommendations on debt restructuring because of COVID-19 related stress on various sectors as well as the notifications and circulars issued so far on loan moratorium.

The top court is hearing a batch of pleas, including the one which has sought a direction to declare the portion of an RBI notification, issued on March 27, "ultra vires to the extent it charges interest on the loan amount during the moratorium period...".

In its affidavit, the RBI has said that any waiver of interest on interest would entail significant economic costs that cannot be absorbed by the banks without serious dent to their finances, and this, in turn, would have huge implications for the depositors and the broader financial stability.

The RBI has said that mere continuation of the temporary moratorium would not even be in the interest of borrowers.

It has also said that the apex court's interim order of September 4, restraining classification of accounts into non-performing accounts in terms of the directions issued by the RBI, may kindly be vacated with immediate effect.

Meanwhile, the Centre told the Supreme Court that "it's not possible to give more relief to different sectors" amid the Coronavirus pandemic, stressing that the "courts should not interfere in fiscal policy".

It would not be possible to add to the already announced financial relief packages and waive compound interest for the six-month loan repayment moratorium period, the Centre informed the apex court.

In its latest affidavit, the government has said, "Policy is the domain of the government and court should not go into sector-specific financial relief. Any further relief, besides waiving of compound interest for loans up to Rs 2 crore, is detrimental to the national economy and banking sector."

It said relief such as "extension of moratorium, applicability of the resolution framework, fixation of interest rate, transmission of rate cuts, delinking of interest rate from credit rating of the borrower and moratorium on repayment of non-credit instruments" have been sought in the petitions.

"This, in turn, requires expertise, technical knowledge of financing, and experience in dealing with the subject. Therefore, eligibility of proposals, benchmarks for viability, assessment of reasonableness of assumptions and, finally, acceptance and monitoring of resolution plans are matters best dealt with between the borrower and lending institutions concerned," it said and urged the court not entertain such pleas.

"I state that the lending institutions will be required to take suitable steps for implementing the decision of waiver of interest on interest [compounded interest] in the respective accounts of the eligible borrowers within one month from the aforesaid office memorandum subsequent to which the lending institution will approached the Central Government for reimbursement, it said. With agency inputs

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