RBI to SC: ‘Not Possible to Extend Loan Moratorium Period, May Vitiate Overall Credit Discipline.’

When the government had announced about filing an affidavit for the ‘interest on interest’ waiver, there was a sigh of relief among the people for the reimbursement of the loan. The waiver stated that the government would be bearing the burden of interest on interest incurred or accumulated during the moratorium period.


RBI files an affidavit along with Centre on loan moratorium case

As the government has filed an affidavit in the Supreme Court, the country’s banking regulator (RBI) also has filed an affidavit in the case of loan moratorium. In the affidavit, the RBI has stated that it won’t be possible any further to give relief to the sectors which were affected by the pandemic, it also stated that any moratorium period exceeding more than six months could damage the operating system of banks. It will also affect the process of credit creation in the economy.

On Monday the supreme court had announced that the affidavit provided by the government didn’t contain all the required and necessary details, and asked the RBI and centre to go with the recommendations of KV Kamath committee on debt restructuring of the loans in respect of the COVID-19 issues and stress caused on different sectors due to the pandemic and the announcements made related to the moratorium period.

The Apex court’s decision came after it the Finance ministry filed an affidavit of waiving off the interest on interest charged on loans up to 2 crores during the moratorium period proclaimed due to the pandemic. After the demand and pleadings from different sectors, the government has told the Supreme Court that they could not provide any further reliefs apart from they have announced.

On one of the sectors like real estate RBI had commented that it was already facing financial issues even before the pandemic had set into motion.

When there was a demand by many petitioners seeking resolution on their loan overdue from more than 30 days as on 31 March 2020, RBI replied to such comments that an account which was impacted by pandemic as well as had a pre-existing ten financial has a different risk profile as compared to an account without pre-existing stress and to treat both borrowers on an equal footing would be a gross suspension of economic sensibilities.

As we can see, the moratorium period has affected deeply to the financial institutions, and this can be seen in many ways. It has also led banks to take surplus capital.

Read: State-Run Banks to Get More Capital From The Government to Promote Lending.




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