August 7, 2022

RBI: “Not possible to extend the moratorium period beyond 6 months”

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The Reserve Bank of India (RBI), the banking regulator in the country has registered for a new affidavit in the Supreme Court with respect to the loan moratorium case.

RBI has clearly drafted in the affidavit that it is not possible to give more relief to the sector affected by the Coronavirus pandemic. RBI added that it is not possible to extend the moratorium period beyond six months.

The banking regulator further explained that a longer moratorium exceeding a period of six months “may result in vitiating the overall credit discipline which will have a debilitating impact on the process of credit creation in the economy”.

The move can “increase the risks of delinquencies post resumption of scheduled payments” and “exacerbate the repayment pressures for the borrowers,” RBI further added.

The RBI to answer to the demand of the petitioners urging to resolve loans overdue after 30 days considering till March 30, 2020, stated, “An account which was impacted by pandemic as well as had a pre-existing 10 financial has a different risk profile as compared to an account without pre-existing stress and to treat both borrowers on equal footing would be gross suspension of economic sensibilities.”

The petitioners also pointed out that the moratorium circulars were not directly available for the borrowers but conditionally given on the discretion of the lenders. To which, the RBI replied, “In this context, it is submitted that the Reserve Bank has only provided an enabling mechanism for the lenders to permit the moratorium, without the same being treated as restructuring of the terms of the loan contract for regulatory purposes.”

This response is directed after the Supreme Court instructed the government to contemplate on providing relief to the borrowers.

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