RBI has urged the Supreme Court to not undermine its regulatory mandate and lift the stay on the classification of NPAs to ensure the banking system isn’t adversely affected.

Opposing any extension of loan moratorium, RBI has filed an affidavit in the top court stating that it has largely accepted and notified Kamath Committee recommendations on loan restructuring for big borrowers. The court is slated to hear the case on October 13.

RBI has left it for individual banks to decide on the extension of loan moratorium, which means banks can transparently decide on the eligibility of customers for moratorium scheme.

RBI has opposed any extension of loan moratorium beyond 6 months, claiming that a longer period will impact credit behaviour of borrowers and can increase the risk of delinquencies after scheduled payments resume.

RBI has stated that policy decisions need to factor in financial stability and the nation’s economic growth, and assured that a balanced view of the interest of banks, depositors, borrowers and real sector entities was taken. RBI told the court that every regulatory forbearance has its trade-offs in terms of adverse incentives and unintended consequences.

Kamath committee recommendations have largely been accepted by the RBI and notified on September 7. RBI has accepted the different treatment of 26 sectors accorded by the Kamath Committee by means of putting separate thresholds.

Specific thresholds will have to be met for 5 key ratios in respect of borrowers in 26 sectors. RBI noted that Sector-specific thresholds provided by the committee are more liberal than normal lending financial benchmarks.

For resolution plans, RBI has proposed accounting of pre-COVID financial performance of borrowers and assessment of cash flows in subsequent years.

After proposing compound interest waiver for loans up to 2 crores, Centre has opposed any further interest waiver for any specific category of borrowers.

Maintaining its discretion on fiscal policy, Centre submitted that the decision to waive compound interest was taken in the context of the pandemic to help vulnerable borrowers.

Pointing to sector-specific pandemic related relief already being provided by RBI and the Union Government, Centre told the court that decisions on expenditure commitments are taken based on the well-set procedure.