Let us declare NPAs, banks to Supreme Court; govt pleads against sector-specific relief

The Indian Banks’ Association on Friday made a strong case for vacation of the Supreme Court order that restrained banks from classifying accounts as NPA. Senior counsel Harish Salve, appearing for IBA, vehemently urged a Bench led by justice Ashok Bhushan to vacate its order of September 3 that directed banks against declaring loan accounts that were not NPAs prior to August 31.

Solicitor general Tushar Mehta, appearing for the Centre, urged the apex court not to delve into the issue of sector-specific loan repayment reliefs and the issue should be left to be resolved between lender banks and borrowers. The apex court had last week asked RBI to respond to the power producers’ demands for various benefits, including restructuring of their loans, under the recent central bank circular on debt recast.

Banks are losing money everyday due to these restrictions and the same should be lifted as the need for such protection no longer existed, he argued, adding that “banks are rendered helpless against defaulting borrowers”, Salve contended.

The Bench also comprising justices R Subhash Reddy and MR Shah, however, said that it will hear the case, including IBA’s plea, on December 2.

The power sector had asked the top court to direct the Union government to instruct lending institutions to not charge interest on interest accrued during the moratorium period. Since the compound interest relief unveiled by the government is only for loans up to Rs 2 crore, power companies have hardly benefited. The Association of Power Producers had argued that “the sector being an essential and abused segment just needs tweaking of the RBI circular to make it inclusionary so that the sector could avail the benefits of the scheme”, senior counsel AM Singhvi had argued, adding that the power sector NPAs have been the result of non-payment consumers (discoms). Stating that the generating companies, which are suffering the most, he said the total debt had risen to Rs 1.2 lakh crore.

Meanwhile, the SC disposed of various petitions filed by individual borrowers who had expressed their satisfaction on the measures taken by the Centre to redress their grievances, including waiver of interest on loan instalments. It also asked the government and banks to implement all relief measures that had already been announced by the finance ministry vide its circular of October 23, 2020. It directed the government and the RBI “to ensure that all steps be taken to implement the decision … so that benefit as contemplated by the GoI percolates to those for whom the financial benefits have been envisaged and extended”.

Senior advocate Kapil Sibal for Credai (Maharashtra) argued that the Centre, RBI as well as the bankers’ association had said that everything needed to be worked out in accordance with the contract. “This means disaster or no disaster contractual provisions will prevail. The position is that contractual provisions will prevail with or without Covid. As on September 1, 98% of the industry will become NPA. These are figures of the government. If court does not protect us, we will not be entitled to any relief,” he contended.

The Centre in October said that it would waive compound interest on the repayment of loans of up to Rs 2 crore in some categories, a move that would provide relief to individual and MSME borrowers.

The apex court is hearing a batch of petitions by various industry bodies, such as Association of Power Producers, various chapters of Credai and Shopping Centres’ Association of India, etc. The petitions are seeking industry-specific reliefs in repaying loans in the wake of coronavirus pandemic.