Recent news coverage indicates that the Supreme Court (SC) is evaluating multiple petitions, which are asking for a waiver of interest during the loan moratorium period. Earlier in 2020, the Reserve Bank of India (RBI) implemented a six-month loan moratorium, permitting borrowers to postpone payments on loans and Equated Monthly Installments (EMIs). The initiative aimed to offer financial relief to borrowers during the Covid-19 pandemic crisis.
The Stand of the Central Government
The Central Government has expressed that it would have to sacrifice an estimated amount exceeding Rs. 6 lakh crore if they grant comprehensive waivers of interest on all debts acquired during the moratorium period. It cautioned that this would place a heavy burden on banks and could eradicate a significant part of their net worth. This presents a potentially threatening situation to their overall survival.
Deposits vs. Loans and Financial Resource Utilisation
The government stressed the importance of continued interest payments to depositors, a key routine in banking activities, emphasizing its obligation to the majority of depositors who are typically small depositors or pensioners relying on interest from their deposits. In the Indian banking system, around 8.5 deposit accounts exist for each loan account. Therefore, the need to preserve resources and use them efficiently during such economically challenging times was also highlighted. The government also touched upon the industry-specific relief measures that it has introduced for small and medium-sized businesses, especially for sectors like restaurants and hotels.
Centre’s Relief Measures for Different Sectors
For the power sector, the government sanctioned liquidity injection exceeding Rs. 90,800 crore to support power distribution companies by enabling them to settle their outstanding debts with power producers and transmission companies.
In the real estate sector, advisories were released allowing extension of registration and completion dates for projects under the Real Estate Regulatory Authorities by declaring Covid-19 as a force majeure event. This provision, from a contractual perspective, allows temporary relief from contractual obligations during force majeure events.
The Micro, Small and Medium Enterprises (MSME) sector was provided with an Emergency Credit Line (ECLGS) up to Rs. 3 lakh crore, backed by a 100% government guarantee. This serves to help MSMEs resume regular operations.
Relief Measures for Small and Big Borrowers
For small borrowers, decided was a relief where the waiver of compound interest during the six-month moratorium period would be restricted to the most vulnerable borrowers who took loans up to Rs. 2 crore. The RBI has classified big borrowers as those having loan accounts worth Rs. 1500 crores and above.
For big borrowers, the Kamath Committee constituted by the RBI suggested financial parameters for restructuring debt across 26 sectors impacted by Covid-19.
Additional Measures Taken by the Government
Furthermore, the Insolvency & Bankruptcy Code (IBC) was briefly suspended for a duration of six months to safeguard companies from being forced into bankruptcy tribunals due to distress caused by the pandemic. The Security and Exchange Board of India (SEBI) issued circulars to ease the “recognition” of defaults committed during the moratorium period.
