The Reserve Bank of India (RBI), on Wednesday, told the Supreme Court that extending the date of the loan moratorium is “not viable”.

Appearing before a three-Judge Bench, led by Justice Ashok Bhushan, the RBI, represented by senior advocate VGiri, referred to clause 3 of its August 6 circular for ‘Resolution Framework for Covid-19-related Stress’ to point out that lending institutions, guided by their respective board-approved policy, would prepare viable resolution plans for eligible borrowers. But lenders would also ensure that this resolution is provided only to borrowers stressed on account of Covid-19.

The lending institutions shall frame board-approved policies pertaining to implementation of viable resolution plans for eligible borrowers under this framework, ensuring that the resolution under this facility is provided only to the borrowers having stress on account of Covid-19, the RBI submitted.

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It is estimated over Rs six lakh crore debts were incurred by all classes and categories of borrowers during the moratorium period

The board-approved policy shall, inter alia, detail the eligibility of borrowers in respect of whom the lending institutions may be willing to consider the resolution, and shall lay down the due diligence considerations to be followed by the lending institutions to establish the necessity of implementing a resolution plan in respect of the concerned borrower, the RBI reiterated in court the August 6 circular.

The borrowers need to only invoke their interest in the benefits enumerated under the August 6 circular, said Giri.

“So, borrowers have to only come and say that they want to take the benefit of the RBI circular of August 6?” the Bench queried.

Solicitor General Tushar Mehta, for the Centre, suggested that the RBI could even, once again, clarify the contents of the August 6 circular for the benefit of the borrowers, which include corporate and industry sectors stresses by the pandemic losses.

The RBI said the framework issued by the Reserve Bank on August 6was aimed at facilitating revival of real sector activities and mitigating the impact on the ultimate borrowers, which are under financial stress caused by economic fallout on account of Covid-19 pandemic.

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Senior advocate Mukul Rohatgi, for the State Bank of India, said that “for every borrower there are lakhs and lakhs of depositors”.

He said the court has been prodding banks almost everyday for loan relief, but now it was time to leave fiscal policy to the government.

Next hearing

The court scheduled the case for further hearing on December 14.

On Tuesday, the court had orally said it would not pass any order which may risk the economy going haywire. This comment came after Mehta revealed that a blanket waiver of interest on debts incurred by all classes and categories of borrowers for the moratorium period would mean forgoing an estimated over ₹6-lakh crore.

“If banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival,” the Solicitor General had submitted.

Giri had added that the discretion to frame a resolution plan should be with the bank and not the borrower.

The Supreme Court is hearing the Centre’s response to separate pleas made by industry, real estate and power sectors, among others, for debt relief, including waiver of interest, for the six-month loan moratorium period, to help them get back on their feet amid the pandemic.

Mehta had said a possible crippling of the banking sector was one of the main reasons for “not even contemplating waiver interest” and restricting relief to “deferment of payment of instalments”.

He had explained that for every loan account there are about 8.5 deposit accounts in the Indian banking system.

“As mentioned on oath by Indian Banks Association, the State Bank of India has stated that interest amount from borrowers during six months moratorium works out to be ₹88,078 crore [approx], whereas the interest payable to the depositors during the said period works out to be ₹75,157 Ccrore [approx],” the Solicitor General had submitted.