The Supreme Court on Wednesday reprimanded the Central Government in the matter of exemption from interest during the term of the loan moratorium. The court while hearing the case told the central government that it cannot hide behind the Reserve Bank of India (RBI). The Centre’s comment that businesses and banks will be affected, the Supreme Court reacted sharply, saying, “This happened because you shut down the entire country.”
The Supreme Court has asked the government to clarify its stand on the petition by September 1, stating that the loan interest should be canceled during the corono virus lockdown. The court said that the Center has not made its stand clear even though there is ‘sufficient authority’ under the Disaster Management Act to grant exemption.
Solicitor General Tushar Mehta said, “One solution cannot be for everyone.” The court said, ‘You can not only take interest in business, you also have to know about the sufferings of the people.’
During the hearing of the case, Justice Ashok Bhushan said, ‘This problem is due to the lockdown of your (Central Government). This is not the time to think about business. The plight of the people also has to be considered. You have to clear your stand on two things: Calculation of Disaster Management Act and Interest on Interest.
In this case, the petitioner demanded that some part of the RBI notification issued on March 27 be canceled so that the interest could be waived. He said that interest creates difficulty, hindrance and objection to the right to life guaranteed under the Constitution. The RBI had earlier told the court that there could not be an interest waiver during the moratorium of a term loan as such a move would threaten the financial health and stability of banks. At the same time, on the Supreme Court’s response of ‘hiding behind RBI’, Mehta replied that My Lord you cannot say that. We are working closely with the RBI.
After the loan moratorium to the common people in the Corona crisis, preparations have been started to provide relief through debt restructuring. Several private and state-run banks, including the State Bank of India, have begun work on the framework for restructuring home loans. According to sources, the KV Kamath committee will not focus on retail. Banks have to prepare their own proposal to restructure retail debt.
According to banking sources, in the option that banks are considering, lenders can choose to close the home loan EMI for a few months or reduce the existing EMI by two years. However, banks will have the full right to restructure the loan and these options will be for those whose income has completely ended in the Corona epidemic or they are troubled by pay cuts or other problems. It is noteworthy that RBI Governor Shashikant Das had announced the debt restructuring facility while announcing the monetary review policy. Under this, banks were given the option to extend the loan repayment period or to reduce the EMI by giving relief.
Relief is possible for personal loan
According to experts, banks can give relief not only to the customer taking home loan but also to the personal loan person. This is because when the RBI made the announcement, it also included a personal loan. However, said that the resolution of the stressed personal loan would be available only to those borrowers who have defaulted not more than 30 days on 1 March 2020. Banks can give a loan extension of two years to such loans. This extension can be granted with or without any restriction on the payment of loan installment. Customers can apply for restructuring before 31 December.
Preparations to stop NPA increases
Banks themselves also want to restructure debt, so that defaulters do not increase and the NPA of the bank does not increase. Banks also say that this time is not right for extortion and sealing of assets. Although the Reserve Bank of India has allowed all banks to extend the loan limit for up to two years, bankers say they cannot offer a moratorium of two years.
Kamat committee will not work on retail loan
According to sources, the KV Kamath committee will not focus on retail. Banks will have to prepare their own proposal for restructuring the retail loan, which they will submit to their board early next month. The Kamath committee may give its suggestion on the loan of more than 15000 crores early next month. The task of the Kamath Committee is to see how to take out the assets endured during the Corona period.
Losses to banks due to Moratorium
Banks are suffering losses due to the six-month moratorium given by RBI. It can be understood that if someone has taken a 15-year home loan and has used the Reserve Bank’s Moratorium facility, then his loan will automatically increase for 14 months. Home loan rates have come down to less than seven per cent and in such a situation banks are saying that it will not be possible to provide cheap interest rate by restructuring the loan. Doing so will increase the cost of banks.
A day before the Reserve Bank (RBI) monetary policy review, experts said the central bank may avoid a policy rate cut on Thursday, but other measures such as debt restructuring amid the need to revive the economy hit by the Corona virus crisis Can announce. The six-member Monetary Policy Committee (MPC) headed by the Reserve Bank Governor will announce the monetary policy review on August 6. This is the 24th meeting of the MPC. However, experts differ on policy rate reductions. Experts believe that debt restructuring is more important to deal with the impact of Kovid-19 at this time.
Finance Minister Nirmala Sitharaman said last week, our focus is on restructuring. The finance ministry is in talks with the RBI. Apart from this, the central bank can issue guidelines regarding deferment of loan repayment. Its duration is going to end on 31 August. Bank officials are protesting its extension over the possibility of its misuse.
MPC has met twice before its meeting
With the rapidly changing macroeconomic environment and weakening growth scenario amid the Kovid-19 crisis, the MPC has met twice before the meeting. The first meeting was held in March and then the second meeting in May 2020. The MPC reduced the policy interest rate of the Reserve Bank by 1.15 points by aggregating the percentage in both meetings. In order to give a boost to economic growth, the overall policy rate has been cut by 2.50 percentage points after February 2019. The central bank has been actively taking steps to reduce the damage to the economy from the lockdown imposed for the epidemic and its prevention.
According to a research report by SBI, banks have reduced the interest rate on new loans by 0.72 per cent. This indicates that the benefit of policy rate reduction was passed on to the customers faster through interest rate reduction. SBI has cut interest on retail loans related to repo by 1.15 points. Shanti Ekambaram, Group President (Consumer Banking), Kotak Mahindra Bank, said that the rate cut has not had much impact in accelerating demand or growth.
Uncertainties still remain
He said that the Kovid-19 crisis is affecting both companies and customers. The uncertainties still remain. Ekambaram said, given the earlier cut in the policy rate and inflation still above six per cent, the MPC may adopt a wait and watch policy and maintain the status quo in August. The government has given the responsibility of keeping the Reserve Bank at 2 per cent with inflation varying by two per cent.
The central bank takes into account the inflation rate based mainly on the consumer price index when considering monetary policy. Inflation based on the Consumer Price Index was 6.09 per cent in June due to higher prices of food items such as meat, cereals and pulses. Experts are of the opinion that the MPC will maintain a soft stance on the monetary policy front in view of the rapidly changing macroeconomic environment.