Loan moratorium: Another step from the announced relief would be detrimental to the economy, Center SC says

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It also called on Attorney General KK Venugopal to assist the court in the case as “this problem is going to crop up somewhere”.

The Center has informed the Supreme Court that it can be “detrimental” to the macroeconomic scenario to go beyond the fiscal decisions already made, such as: For example, the waiver of compound interest on loans of up to 2 billion, economies and banks must not accept any “inevitable financial constraints”.

The Union Treasury, through its additional secretary, Pankaj Jain, filed the affidavit in accordance with the Supreme Court order dated October 5, asking it to review the recommendations of the KV Kamath Committee on debt restructuring in the face of COVID-19 related stresses in various sectors as well as the notices and circulars issued to date on the credit moratorium and financial difficulties.

Earlier, the Center had notified the Supreme Court that it had decided to waive compound interest (interest) on loans of up to Rs.2 billion for a six-month moratorium period announced by individual borrowers in eight due to the pandemic – MSMEs , Education Loans, Home Loans, Permanent Consumer Loans, Credit Card Fees, Car Loans, Professional Personal Loans, and Consumer Loans.

The court ruled on October 5 that the Centre’s affidavit did not contain any necessary details and asked the Center and the RBI to submit new ones on the case. In the new affidavit, the Center referred to its various fiscal decisions and the Reserve Bank of India and expressed its inability to widen the scope of the relief already granted to various sectors.

“It … Anything other than what has been decided and presented to the Honorable Tribunal can adversely affect the macroeconomic scenario and the economy or banking sector cannot bear the inevitable financial constraints that result.”

The official said the centre’s decision on the issue of interest waiver to take on the compounding burden on certain credit categories was only made in the particular context of the greater public interest pandemic, i.e. an unprecedented situation in itself.

Such fiscal policy decisions are made after a careful gathering of facts, careful evaluation of those facts, and weighing various alternatives, taking into account the economic impact on the financial strength of stakeholders and any other relevant factors, especially during the pandemic when the global is the fiscal scenario just as bad and the fact that it is uncertain until what point in time the current global and national economic stress will continue, says the affidavit.

The center said the recommendations of the Kamath Committee were widely accepted by the RBI, finding the panel “variable impacts of the pandemic on multiple sectors with varying degrees of severity and nature of the problems”.

“A review of the entire report would show that it is neither possible nor desirable to arrive at any particular formula, be it sectoral or otherwise, to deal with the stressful situation resulting from the unprecedented pandemic,” it said.

The Kamath panel had made recommendations for 26 sectors that could be considered by lending institutions in finalizing loan settlement plans, saying that banks could take a tiered approach based on the severity of the coronavirus pandemic in a sector.

It states that the government is providing aid through the “Garib Kalyan package of Rs 1.70 lakh crore and the Aatma Nirbhar package of Rs. 20 lakh crore” and the RBI has also taken various measures to address the negative financial impact mitigate.

Easements such as “extension of the moratorium, applicability of the settlement framework, setting of the interest rate, transfer of interest rate cuts, decoupling of the interest rate from the creditworthiness of the borrower and moratorium on the repayment of non-credit instruments” were sought.

“This in turn requires specialist knowledge, technical know-how in financing and experience in dealing with the topic. Therefore, the eligibility of proposals, benchmarks for profitability, assessing the reasonableness of assumptions and finally adopting and monitoring resolution plans are matters that are best settled between the borrower and the credit institutions concerned, “it said, urging the court to not to consider such objections.

“I declare that the lending institutions are obliged to take appropriate steps to implement the decision on the interest waiver [compounded interest] on the respective accounts of the eligible borrowers within one month of the above office memorandum, after which the credit institution will contact the central government for reimbursement, ”it said.

Earlier in the day, the RBI filed an affidavit that a moratorium period of more than six months could cause overall credit discipline to be compromised, which would have a “debilitating effect” on the process of credit creation in the economy.

The Supreme Court hears a number of pleas, including the one who requested an instruction, which is part of the RBI notice dated 27 of the petitioner as a borrower and which hinders and hinders the “right to life” guaranteed by Article 21 of the Constitution.

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