Loan restructuring: Supreme Court calls for action on Kamath report

The Supreme Court on Monday asked the Center and the Reserve Bank of India to record action taken on the KV Kamath committee report on debt restructuring and also urged the duo to consider “relevant issues raised by real estate associations. and electricity producers. ”.

The Supreme Court observed that the Centre’s offer to waive “interest on interest” on loans up to Rs 2 crore for specified individual borrowers and MSMEs was “unsatisfactory”. The affidavit “does not address several issues,” he said.

The court’s decision increased the chances that he would give instructions to the RBI modify the special window instituted by it in August for lenders to overhaul loans to individuals and businesses in difficulty.

“The problem is not to record the report but to implement the report… The Center and the RBI should make certain orders so that people know what benefit is extended,” the highest court said when the government made. argue that “there is nothing to hide”.

Last Saturday, the government agreed in court to waive compound interest on their loans up to 2 crore rupees for the six-month moratorium period (March-August), but strongly opposed the extension of ‘such relief to all categories of borrowers, citing the enormous burden such a measure would weigh on banks, which could even make most of them unsustainable.

The tax cost of the interest exemption proposed by the Center is variously estimated between Rs 5,000 and Rs 30,000 crore by various agencies, while a precise estimate will only be available when the details of the plan are clarified.

The KV Kamath panel was set up by the central bank in view of the stress inflicted by Covid-19 on various sectors to recommend parameters of eligibility for loan restructuring. He identified 26 sectors for relief last month and also suggested sector-specific thresholds for these sectors. He said electricity, construction, iron and steel, roads, real estate, wholesale trade, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, mining were among the sectors that would require restructuring.

A bench led by Judge Ashok Bhushan asked the Center and the RBI to submit to it within a week the panel’s recommendations and various policy decisions and directives taken by the panel to implement their plans on the loan moratorium. It also allowed them to file a consolidated response each rather than responding to each applicant separately. He also called on various industry organizations to table their responses to the government’s loan relief plan.

Under the RBI’s special window, lenders are allowed to recast loans to stressed individuals and businesses without classifying them as non-performing, provided they set aside 10% provisions on those advances.

The Supreme Court will hear the case on October 13.

Solicitor General Tushar Mehta argued that small borrowers were covered by his plan while the Kamath committee’s recommendations would cover borrowers who took on larger loans.

Senior lawyer V Giri, appearing for RBI, told the judges that “a large percentage of people feel that interest over interest hits them very hard. There are further deliberations and recommendations to be made and they will be taken into consideration. If you think the report needs to be saved, we’ll do it ”.

Senior lawyer Harish Salve, representing the banks, argued that “our accounts were frozen because the SC prevented us from classifying the accounts as NPA. It will take us 48 hours to come back to court on the government’s proposal ”.

Real estate agent organization Credai challenged the finance ministry’s estimate that waiving interest on loans to each category would cost banks 6 lakh crore. Its lead attorney, CA Sundaram, argued that the affidavit removed the real estate industry from consideration and did not affect the industry at all.

Senior lawyer Kapil Sibal also backed Sundaram, saying the problems were much more serious because, as of September 1, all of our accounts are “non-standard… We have not been granted any loan restructuring”. “Many of the facts and figures in the government’s affidavit are unfounded and the Finance Department’s estimate that waiving interest on loans to each category would cost banks 6 lakh crore is false,” he said. -he declares.

Sibal, in a previous hearing, argued that the current loan restructuring (as authorized by the RBI) will not provide relief to 95% of borrowers. “The downgrading of borrowers continues and they need to be protected,” he said.

On September 3, the SC had banned banks from reporting loan accounts that were not NPAs until August 31. He had given the government and the RBI a “last chance” to come up with a concrete plan on the issue of waiver of interest. He also called on the government to make a decision after considering the interests of all classes of creditors and all sectors of the economy.

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