Moratorium on loans: the government reiterates its opposition to the interest exemption on IMEs

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Mehta suggested that a meeting of central government officials with the RBI and other banks will be held soon to find a suitable solution.

The finance ministry on Tuesday opposed a waiver of interest on interest or any “static relief” under the six-month moratorium on term loans that ended on August 31, saying such solutions universal policies might militate against financial stability.

In a new affidavit submitted to the Supreme Court, however, the ministry said that the debt restructuring plan notified by RBI early last month involved the option of a two-year moratorium, as well as personalized reliefs for individual borrowers, including “a change in the interest rate and a discount (by lenders) on the amount payable to title of interest ”.

“A waiver of interest on interest during the moratorium would also be contrary to the fundamental canons of finance… Any moratorium is transitory by its very nature and must end someday.

Continued on page 2 Thus, the best interests of the economic health of the country, as well as that of the respective borrowers, would be better served by paving the way for a more sustainable long-term solution to debt restructuring, ”the ministry said. .

The Supreme Court last week strongly opposed the central government’s refusal to take an independent position on the issue of waiving interest under the six-month moratorium and gave it another opportunity to clarify its point of view. view. Stating that the Center “cannot hide” behind RBI, the court asked the government to provide a separate affidavit by Tuesday.

In its affidavit, the ministry said that an ex post facto change in the terms and conditions of the moratorium offer favoring those who took advantage over those who made the extra effort to repay on schedule would be “Grossly unfair and manifestly unfair” for those who did not initially benefit from the moratorium or subsequently waived it.

Calling the moratorium on term loans announced to relieve borrowers in the context of Covid-19 a “temporary standstill arrangement”, the ministry said “in the best interests of the economic health of the country, as well as that of the respective borrowers . would be better served by paving the way for a more sustainable long-term debt restructuring solution ”. Thus, a borrower, who fears being in default on September 1 and becoming an NPA shortly thereafter, could continue to benefit from a moratorium under the resolution plan implemented under the terms of the circular (RBI of August 6) ”, the Center indicated in the affidavit.

Solicitor General Tushar Mehta, representing both the Center and the RBI, told a bench led by Judge Ashok Bhushan that several measures had been taken for the struggling sectors and the economy had contracted by 23, 6% due to the Covid-19 pandemic. “We are in the process of identifying the sectors in difficulty to vary the benefits according to the impact (Covid-19) of the blow they have suffered,” he said.

Mehta suggested that a meeting of central government officials with the RBI and other banks will be held soon to find a suitable solution.

However, the bench said “we hear this from the last three court dates. From day one, we have been asking you to come up with a mechanism. The country is going through a problem, we will hear the issues tomorrow (Wednesday).

The Supreme Court is hearing a petition demanding a moratorium on all loan payments for the period March 1 to August 31 as well as a waiver of interest on unpaid installments.

The finance ministry stressed that the problems of borrowers cannot be treated by treating them as a homogeneous class. There are business loans, MSME accounts, and personal loans. As for lenders, they are also of all kinds, including programmed commercial banks, RRBs, cooperative banks, etc. The structuring of loans differs between different categories of lenders, including the interest rate and the duration of the loans. Individual loans also vary, including home, education and vehicle loans, he noted, stressing that the solutions to problems in each category cannot be the same.

Earlier, the RBI had informed the SC that any “forced” waiver of interest on a moratorium on loans would jeopardize their financial viability and harm banks up to Rs 2 lakh crore (1% of GDP). Agreeing with this view, the ministry said banks continue to incur costs on bank deposits and loans, and added that deposit accounts themselves exceed 197 crore.

While the court wanted the Center to invoke its powers under the Disaster Management Act to deal with the plight of borrowers, the government said that “the National Disaster Management Authority did not intervene because, by its very nature, it may lack expertise in dealing with complex political decisions affecting the financial stability of the nation in general and that of the banking sector in particular ”.

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