Do not classify accounts that are not in default by August 31st as NPA until further orders: SC

The Supreme Court on Thursday offered a shield over two-month loan accounts, those that had not been declared non-performing assets (NPA) as of August 31.

This instruction came during the hearing of the request for waiver of the interest rate on the moratorium on repayment of the loan by a bench of three judges – Judges Ashok Bhushan, R Subhash Reddy and MR Shah. The hearing will resume on September 10.

The Reserve Bank of India had authorized a moratorium for a six-month period ending August 31. This means that borrowers such as home loans or car loans have been allowed to defer six IMEs (equivalent monthly payments).

However, banks have said borrowers opting for the deferral will have to pay more. SBI published on its website that for a 30 lakh home loan with a remaining maturity of 15 years, the additional interest payable would be 4.54 lakh almost equivalent to an additional 16 IMEs. It means interest over interest.

The House is also considering the issue of interest to be charged on interest as well as the powers of the Center and NDMA (National Disaster Management Authority) under the Disaster Management Act to provide relief on the aspect of loan repayment during the pandemic.

During Thursday’s hearing, the judiciary made it clear that it did not intend to deal with the circular of August 6. The circular is not contested but the adjustment is requested. The question is about compound interest claims in the interim. Moratorium and criminal interest cannot go hand in hand. RBI will need to clarify, he said.

The rules say if three IMEs are not paid then a particular loan account will become NPA (non-performing assets).

The Chamber sought clarification on this matter and asked if this should be recorded in its order. Senior lawyer Harish Salve, representing the Association of Indian Banks, said this moratorium is not included in the default period. Once the moratorium is over, the default 90 day period will begin. There is no concession, he said.

The judiciary took note of Salve’s and the Solicitor General’s submissions and said: “Accounts that were not declared NPA by August 31 should not be declared NPA until further notice.”

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