Loan moratorium exceeding six months can impact credit behaviour of borrowers, RBI tells SC
Oct 10, 2020
New Delhi [India], October 10 : Extending the loan moratorium, which was announced to cope with the economic fallout of COVID-19, by another six months can impact the credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments, the Reserve Bank of India (RBI) has submitted before the Supreme Court.
The RBI made the submissions in its consolidated counter-affidavit which was recently filed in compliance with the October 5 order of the apex court, in which it has also highlighted the recommendations of the KV Kamath Expert Committee.
It submitted before the top court that it had already announced several measures to mitigate the immediate impact on the real sector as well as the financial sector.
The affidavit has been filed before the Supreme Court on two petitions, filed by one Gajendra Sharma and lawyer Vishal Tiwari, seeking an extension of the moratorium period and to waive off the interest on the repayment of the loan amount in view the COVID-19 pandemic.
The matter is slated to come up before the top court for hearing on October 13.
The RBI, in its detailed counter-affidavit, submitted that it had announced multiple sets of guidelines since March 2020 to respond appropriately to the evolving situation with the primary objective of enabling all key constituents in the economy, most importantly the borrowers, to cope with the economic fallout.
"The overriding objective was to prevent financial markets from freezing up; ensure normal functioning of financial intermediaries; ease the stress faced by households and businesses, and keep the lifeblood of finance flowing," the counter-affidavit said.
It said that the RBI has exercised its expert wisdom in issuing binding guidelines to lending institutions on how to differentiate the risks arising from borrowers with pre-existing financial difficulties from those which were performing well but had been impacted by the pandemic.
"The RBI has taken a balanced view, taking into account the interest of the depositors, borrowers, real sector entities and banks. Financial stability and economic growth of the country were also kept in mind while arriving at its policy decisions by it," the counter-affidavit said.
"It further submitted that the moratorium was permitted as a part of the immediate regulatory response, aimed at providing temporary reprieve to borrowers affected by the pandemic while attempting to preserve the resilience of the financial system," it added.
The RBI submitted that all the issues that were advanced by the petitioners have been adequately addressed. There is no scope for further grievance for the petitioners.
"It entails significant costs to the lenders and a balance needs to be maintained in the overall consideration. A long moratorium exceeding six months can also impact the credit behaviour of borrowers and increase the risks of delinquencies post resumption of scheduled payments," it said.
The Reserve Bank of India also submitted that it will be the small borrowers which may end up bearing the brunt of the impact as their access to formal lending channels is critically dependent on the credit culture.
"Further, a mere continuation of the temporary moratorium would not even be in the interest of borrowers. It may not be sufficient in addressing deeper cash flow problems of the borrowers and, in fact, exacerbate the repayment pressures for the borrowers," it said.
