Loan restructuring: Supreme Court seeks steps taken on Kamath report

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October 6, 2020 8:00 AM

Says interest relief offered by Centre ‘not satisfactory', hints it wants realtors and power companies too helped

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

The apex court observed that the Centre’s offer to waive “interest on interest” on loans up to Rs 2 crore for specified individual and MSME borrowers was “not satisfactory”. The affidavit “fails to deal with several issues”, it said.

The court’s move increased the chances that it might issue directions to the RBI to modify the special window instituted by it in August for lenders to recast stressed retail and corporate loans.

“The issue is not about placing report on record but about implementing the report… The Centre and the RBI should make certain orders so that people know what benefit is extended,” the top court said when the government argued that “there is nothing to hide”.

The government last Saturday agreed in the court to waive compound interest on their loans up to Rs 2 crore for the six-month (March-August) moratorium period, but strongly argued against extending such relief to all categories of borrowers, citing the enormous burden such a step would put on the banks, which could even render most of them unviable.

The fiscal cost of the interest relief proposed by the Centre is variously estimated between Rs 5,000 and Rs 30,000 crore by different agencies, while a precise estimate will be available only when the details of the plan are spelt out.

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 eligibility parameters for the restructuring of loans. It last month identified 26 sectors for the relief and also suggested sector-specific thresholds for these sectors. It said power, construction, iron and steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, mining are among the sectors that would require restructuring.

A bench headed by justice Ashok Bhushan asked the Centre and the RBI to place before it within a week the panel’s recommendations and various policy decisions and guidelines taken by it to implement their plans on loan moratorium. It also permitted them to file one consolidated response each rather than responding to every petitioner separately. It also asked various industry bodies to file their response to government loan relief plan.

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

The apex court will hear the case next on October 13.

Solicitor General Tushar Mehta argued that the small borrowers were covered under its plan while the Kamath committee recommendations will cover borrowers who took larger loans.

Senior advocate V Giri, appearing for RBI, told the judges that “a large percentage of people feel that an interest on interest is hitting them very hard. There are more deliberations and recommendations to be made and they will be considered. If you feel the report is to be placed on record, we will do so”.

Senior advocate Harish Salve, appearing for banks, argued that “our accounting has been frozen as the SC has restrained us from classification of accounts as NPAs. We will need 48 hours to get back to the court on the government’s proposal”.

Realtors’ body Credai disputed the finance ministry’s estimate that waiving off interest on loans to every category would cost banks `6 lakh crore. Its senior counsel CA Sundaram argued that the affidavit eliminated the real estate sector from consideration and did not touch the industry at all.

Senior counsel Kapil Sibal also supported Sundaram contending that the issues were far more grave because as on September 1, all our accounts are “non standard… No loan restructuring has been given to us”. “A lot of facts and figures in the government’s affidavit are without any basis and the finance ministry’s estimate that waiving off interest on loans to every category would cost banks `6 lakh crore is wrong,” he said.

Sibal during an earlier hearing argued that current restructuring of loans (as allowed by RBI) won’t provide relief to 95% of borrowers. “Downgrading of borrowers is still continuing and they must be protected,” he said.

On September 3, the SC had directed banks against declaring loan accounts that were not NPAs prior to August 31. It had given a “last chance” to the government and RBI to come up with a concrete plan on the waiver of interest issue. It had also asked the government to take a decision after considering the interests of all classes of creditors and all the sectors of the economy.

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