Covid lockdown: SC seeks reply of Centre, RBI on Credai’s loan moratorium plea

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May 16, 2020 5:15 AM

The Supreme Court on Friday asked the RBI and the finance ministry to clarify whether it is mandatory for banks to grant moratorium on instalments of term-loans to all non-banking finance companies (NBFCs) or if banks can exercise discretionary power to grant such benefit.

The court said there was no clarity as to whether real estate developers were also entitled to the loan moratorium policy or not.The court said there was no clarity as to whether real estate developers were also entitled to the loan moratorium policy or not.

The Supreme Court on Friday asked the RBI and the finance ministry to clarify whether it is mandatory for banks to grant moratorium on instalments of term-loans to all non-banking finance companies (NBFCs) or if banks can exercise discretionary power to grant such benefit.

A bench, led by Justices LN Rao, sought response from the government, the RBI and the Sebi on a plea by the Haryana chapter of Confederation of Real Estate Developers’ Associations of India (Credai), the top body of private real estate developers, alleging confusion over whether NBFCs and Housing Finance Companies (HFCs) are also eligible for the loan moratorium announced by the central bank on March 27.

It said there was no clarity as to whether real estate developers were also entitled to the loan moratorium policy or not. Besides interest waiver for the six-month moratorium period, Credai also demanded that the current RBI moratorium be made mandatory, not discretionary, for all banks, NBFCs and HFCs.

The association also sought six-month freeze on repayment of any commercial papers, bonds or non-convertible debentures.

On March 27, the RBI had issued a circular giving liberty to all banks and financial institutions to allow a moratorium of three months on payment of instalments in respect of term loans outstanding as on March 1, subject to the borrower making such a request. It had also said repayment schedule for such loans, as also the residual tenor, would be shifted across the board by three months after the moratorium period.

Senior advocate Harish Salve, appearing for Credai, said the circular was binding on the banks, but some of them were not expending the loan moratorium benefits on real estate developers. He said the RBI had told the Delhi High Court that the decision to allow the moratorium to a borrower was left to the discretion of the financial institution, while the RBI Governor’s speech in April indicated that it was binding.

However, Solicitor General Tushar Mehta said he would seek instructions from the government and get back to the court. The private real estate developers body also said Sebi had not allowed NBFCs to reschedule liabilities arising out of non-convertible debentures (NCDs), bonds, commercial papers.

Credai argued that there was a constitutional duty upon the regulators to act in sync and put in place measures that would elevate the hardship caused to all the sectors. “Sebi has not acted in furtherance of the overall policy of the government to put in place measures to cope with the liquidity crisis caused by the Covid-19 lockdown, and has not allowed any rescheduling of liabilities through moratoriums in relation to NCDs or other similar instruments.

The NBFCs and HFCs are thus in a position where …they are compelled to allow more time to the customers of the real estate developers, but their obligations under the monetary instruments through which they have raised monies paid to the real estate developers on behalf of the real estate customers remain unaffected. This squeezes the NBFCs/HFCs, having the ultimate effect of lesser loans to the real estate developers, which is being felt by its members because it will cause a complete collapse of the system,” the petition stated.

Also, the plea warned that in the absence of moratorium for NBFCs//HFCs, liquidity crunch would cause bankruptcies and would lead to a crash in property market and destroy the construction industry.

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