SC lifts NPA standstill, rejects moratorium extension and interest waiver

 No interest on interest on moratorium loans

The Supreme Court on Tuesday ruled that banks cannot charge interest on interest for accounts that sought moratorium relief during the pandemic period last year and the amount so collected must be refunded in the next installment of the loan account.

The cut-off for such moratorium, the apex court ruled, would be August 31, 2020, beyond which all loans that had not been repaid as per schedule can be declared as non-performing assets (NPA). Rejecting the pleas to extend the six-month loan moratorium period, the court said a complete waiver of interest during the moratorium cannot be granted either.

Banks can also finally start declaring their bad loans (loans that have not been repaid for 90 days or more), with the court vacating the interim relief granted earlier not to declare the accounts of borrowers as NPA. In September last year, the court had directed that accounts not declared NPAs as of August 31 should not be classified as such until further orders.

The original moratorium came into effect in March 2020, which ran for three months. However, in May, the Reserve Bank of India (RBI) had extended the moratorium for three more months till August 31.

As of August 31, 2020, on a system level, a little over 45 percent of customers availing of the moratorium facility of the RBI and 40 percent in terms of value. For private banks, the number of customers availing of the moratorium stood at 34.8 percent and for state-owned banks, it was 54.88 percent. But the small finance banks saw as much as 82 percent of their customers opt for a moratorium. For non-banks, however, this number was as low as 26.58 percent. But in value terms, they had almost 45 percent of their outstanding credit under moratorium.