Major Relief To Borrowers: Banks Cannot Term Loans As NPAs Till New Orders, Says Supreme Court

In a major relief to borrowers, both individual and commercial, the Supreme Court asked the banks to not declare any loan account as ‘non-performing asset’ (NPA) till it passes orders on several pleas on levying interest on loans during the six-month repayment that ended on 31 August.

A bench comprising of Justices Ashok Bhushan, R S Reddy, and M R Shah passed this interim order after the Indian Bank Association (IBA) offered a two-month moratorium on declaring a non-serviced loans as NPAs, reports TOI.

A loan account is declared as an NPA if the borrower doesn’t service the principal or the interest for 90 days. After this, the bank is free to initiate the recovery process, including selling the collateral etc.

The borrowers argued that they had earned virtually nothing in the last six months on account of lockdown and social distancing, yet were burdened by the interest payments and the interest on the deferred interest payments.

Senior advocate Harish Salve, appearing for the IBA, assured the court that no accounts will be declared as NPA for the next two months till 31 October.

The Solicitor-General Tushar Mehta, appearing on the behalf of the union government and the RBI said that the latter, in consultation with experts, has decided that the residual tenure of the loans could be increased by two years, with or without including the six month repayment moratorium.

Mehta also said that several financial packages were announced by the government to help the industries and that the waiver of interests would have a crippling effect on the banking industry and negatively impact the interest on 194 crore accounts.