No case of COVID-19 related stress to which banks showed apathy, RBI tells SC

IBA says pleas extend beyond the financial stress caused by pandemic

The Reserve Bank of India (RBI) on Wednesday maintained in the Supreme Court that there has not been a single case of COVID-19 related financial stress to which banks have shown an “apathetic” attitude.

A three-judge Bench led by Justice Ashok Bhushan is hearing several pleas by industry and business sectors, including power and real estate, to extend the moratorium or even waive the interest on their debts due to losses incurred during the pandemic.

The Indian Banks Association, represented by senior advocate Harish Salve, said these pleas extend beyond the financial stress caused by the pandemic. He asked whether some of these sectors have placed on record anything to reveal how wobbly they were even before the pandemic.

Mr. Salve submitted that any resolution had to be through restructuring of debt. Private banks dealt with resolutions in line with their norms. Public banks too were listed companies. They have shareholders and could not be asked to write off loans. Reliefs to these sectors should be on the basis of the Kamath Committee recommendations, he said.

In his turn, senior advocate Mukul Rohatgi, for State Bank of India, made a rather impassioned plea in support of the small depositors who form the “backbone” of the banking system. “Small depositors are faceless in these proceedings. It is not a case of borrowers versus bank. They are the backbone of the financial system. Banks have to give interest to these depositors. How can we leave them?”, he stated.

Not viable: RBI

Earlier, the RBI had told the court that extending the date of the loan moratorium was “not viable”. It had referred to clause 3 of its August 6 circular for ‘Resolution Framework for COVID-19-related Stress’ to point out that lending institutions, guided by their respective board-approved policy, would prepare viable resolution plans for eligible borrowers. However, the benefits would only be provided for borrowers stressed on account of COVID-19.

Mr. Salve, during the hearing, said how a large number of borrowers did not avail of the moratorium. Moratorium affected banks adversely. He pointed to several sectors like home delivery, home decor and OTT platforms that have done better during the pandemic. “However you win some and lose some. By executive fiat you cannot make the winning one pay to the one who is losing”, he submitted.

The court referred to Section 13 of the Disaster Management Act of 2005. It mandates that the National Disaster Management Authority would, in cases of disasters of severe magnitude, recommend relief in repayment of loans or grant fresh loans to persons affected by disaster on concessional terms.

Mr. Salve said the provision was meant for those directly affected by a disaster and not those who were in tier two and three. It was the duty of the government to help, through its packages, every sector. It was for the government to see what could be done for each tier of business. Labourers were suffering and breadwinners in families had died. Social security needed to be ensured.

The court will resume the hearing on Thursday.

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