On Thursday, the Supreme Court while hearing a Writ Petition [Ganjendra Sharma & ohers vs. UOI Writ Petition(s)(Civil) No(s). 825/2020] which granted relief to individual and commercial borrowers, asking the banks not to declare any loan accounts which were not declared NPA till 31st August 2020.

The bench of Justices Ashok Bhushan, Justice R S Reddy and Justice M R Shah while hearing the bunch of pleas questioned the levying of interest on loans during the six-month repayment freeze that ended on August 31. The court had passed an interim order restraining banks from declaring loans as NPAs to protect borrowers, who are facing difficulties in arranging funds for loan repayment.

The Indian Bankers Association offered a two-month moratorium on declaring a non-serviced loan account as NPA, “In view of the which, the accounts which were not declared NPA till August 31 shall not be declared NPA till further orders Further top court mentioned 

The principle of NPA where  Banks can declare a loan NPA is that the principal or interest component is not serviced by the borrower for 90 days. Once a loan is declared NPA, banks can resort to recovery processes, including selling mortgaged property.
 The RBI itself exclude 90-day non-performing asset (NPA) norm would exclude the moratorium period for such accounts, The, implying these couldn't be classified as bad assets after stipulated 90-day period. For a period of 1 March to 31May. Which has already exceeded the deadline.[1]

However, the creditors have argued that in this ongoing pandemic, they have earned virtually nothing from their businesses  during the last six months of lockdown and yet were burdened with interest as well on interest accrued on the deferred installments. Borrowers are concerned about the fact that once the moratorium period ends, they would be in hardship with all the deferred installments along with compound interest, making it difficult to pay, and banks could declare their loans as NPAs.

Senior Advocate Mr. Kapil Sibbal, representing several sectors narrated their distress during the lockdown period, the Confederation of Real Estate Developers’ Association of India (Credai), said the attempt of both the Centre and the RBI appeared to be solely to protect the interest of banks and lending institutions.
Sibal stated that the economic downturn had seriously impeded activities of the real estate sector and Credai’s 1,400 members as well as 270 ancillary industries dependent on the real estate sector were badly affected. The Centre, RBI and the IBA had failed to come out with any relief package so far for the real estate sector, he said and supported the demand of other petitioners for waiver of interest as well as interest on interest on repayment of loan installments during the moratorium period.
Advocate Mr. Harish Salve Appearing for the IBA, which has 247 banks as its members, including SBI, promised the court that no loan account would be categorized as NPA for the next two months that is till October 31 whether or not the repayment default exceeded the 90-day deadline.
Solicitor general Mr. Tushar Mehta who appeared on behalf of the Centre and the RBI, said the banking regulator, in consultation with experts, has decided that the residual tenure of loans could be extended by up to two years, with or without including the six-month moratorium period from March 1 till August 31.

Mehta mentioned several financial packages announced by the Union government for different industrial sectors to help revive the economy.

 Further,  Mr. Tushar Mehta informed the court of the  incapacitating effect of waiver of interest on the banking industry which has already suffering loss of more than  Rs 3,571.41 crore  and this will majorily impact interest on deposits in 194 crore accounts.

The SC will resume hearing on September 10.

[1] Reserve Bank of India