SC stops banks from declaring fresh NPAs till further orders

In an interim relief to borrowers, the Supreme Court on Thursday directed banks not to declare loan accounts, which were not under default till August 31, as non-performing assets (NPAs), until further orders.

A bench comprising Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah said: "At the request of Tushar Mehta, Solicitor General, the matter is adjourned for September 10... Harish Salve, senior advocate, submitted that no account shall become NPA at least for a period of two months. In view of the above, the accounts which were not declared NPA till August 31, shall not be declared NPA till further orders."

The bench was hearing a batch of pleas challenging the interest on interest on the deferred EMIs during the moratorium.

The top court also considered the aspect of the role of the National Disaster Management Authority (NDMA) under the Disaster Management Act to provide relief in connection with the repayment of loans against the backdrop of a disaster situation such as the ongoing Covid-19 pandemic.

Petitioners have raised the issue of accounts being rendered NPAs after the moratorium period expired, and apprehended that on September 1, the accounts would be declared NPAs. Therefore, in such circumstances, the moratorium limit should be extended, they urged the top court.

The bench noted that the Reserve Bank of India should clarify, if it is the discretion of banks to give relief to borrowers, and also sought clarification on demand of compound interest in the meantime. The bench observed banks grant benefits to borrowers to allow businesses to continue.

The Solicitor General, representing the Finance Ministry and the RBI, submitted before the bench that an expert committee on resolutions is to decide sectorwise relief to ease stress caused by the pandemic.