RBI’s Appeal to SC: Allow Banks to Classify Bad Loans as NPA

The nations’ financial system will be in peril if the ban imposed on classifying loans as non-performing. This stay was required to support the borrowers during the pandemic induced lockdown.


RBI’s request to lift the ban on classifying loan accounts as NPARBI

The central bank, i.e., the Reserve Bank of India (RBI) while filing an affidavit with the Supreme Court (SC) mentioned that any further delay in doing so could cause harm to the nation’s economy and the situations may deteriorate beyond expectation.
As per RBI, classifying bad loans as NPA is of grave importance.

The court granted the stay last month, following the plea filed by an optician and many other borrowers whose revenue were adversely affected by COVID-19.

The court is about to rule on the matter on Tuesday. The ruling might have extensive consequences not just in favour of the borrowers, however additionally for banks and therefore the state-run organisations.

To help borrowers to weather pandemic-related stress, the Reserve Bank of India (RBI) has let banks provide a moratorium on
loan payments for up to six months and allowed a one-time restructuring of accounts.

The measures of the central bank guarantee that the accounts that were standing before the lockdown was implemented will not be declared as non-performing if the borrower has opted for the moratorium.

The Reserve Bank of India said, “Every regulatory forbearance has its trade-offs in terms of adverse incentives and unintended consequences.” The RBI further added, that each and every issue that was advanced by the petitioners have been adequately addressed and measures have been taken regarding the same.

The centre had informed the court it would waive the compound interest on loans up to rupees two crores under a specific COVID-19 support plan. This move was made to bring relief to borrowing individuals and entities.

In an affidavit filed separately on Friday, the centre told the Supreme Court that it would not be feasible to supplement the already announced relief packages further. The government has asked the court not to permit any further judicial review by the petitioners.

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

 

 

 

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