Accounts not to be declared NPAs till further orders: SC passes interim order

In a major relief to commercial borrowers and individuals, the Supreme Court granted interim relief directing banks not to declare any loan accounts as Non-Performing Assets (NPAs) until further orders. The bench was hearing a bunch of petitions challenging the levying of interest on loans during the six month moratorium period that ended on 31 August, 2020.

A three Judge Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah said that the accounts that were not declared as NPAs till August 31 must be protected and should not declared as NPAs till further orders. This would protect borrowers who are facing difficulties in arranging funds for loan repayments and granted them relief.

The borrowers argued that they earned nothing during the lockdown period, but were burdened with the interest as well as interest accrued on deferred payments.

Although the question for consideration before the Court was limited to interest on interest being charged, the Court also considered the aspect of role of the National Disaster Management Authority under the Disaster Management Act to provide relief as regards loan repayment in disaster situations.

Solicitor General Tushar Mehta, representing the Union Finance Ministry and the Reserve Bank of India (RBI), told the Court that the RBI has issued a circular on August 6 to deal with stressed accounts on account of the pandemic and provides for a resolution plan and restructuring of loans for the accounts that are eligible. He further said that since there are different types of borrowers and lenders and the impact faced by different sectors and borrowers due to the pandemic are also different, a one-size-fits-all solution cannot be granted.

The Court has adjourned the hearing in the case to September 10.