The Supreme Court on 5 October 2020 asked the Centre and the Reserve Bank of India to place on record the K V Kamath committee recommendations on Covid-19-related debt restructuring, opening a new dimension in the ongoing case related to interest waiver on moratorium loans. A bench comprised of Justices Ashok Bhushan, R Subhash Reddy and M R Shah adjourned the case hearing to October 13 by when the Centre and the RBI will submit additional affidavits to chalk out steps that need to be taken to bring shape to recommendations made on waiver of compound interest for small borrowers.

 

What

  1. The RBI had appointed an expert committee, led by veteran banker K V Kamath, to frame a resolution framework on stressed loans
  2. The committee in its report, accepted by the RBI last month, outlined parameters for banks to deal with 26 sectors buffeted by Covid-19.
  3. On 5 October 2020, the SC further asked the RBI and the Centre to respond to concerns raised by the real estate associations and power producers, who are also the petitioners in the ongoing case, and the Indian Banks’ Association to give its views on the central government’s latest stance on waiver of compound interest on dues pending during the moratorium period.
  4. The SC was hearing the case days after the finance ministry submitted an affidavit to say that it is ready to bear the burden of waiving compound interest for small borrowers
  5. Any individual or entity whose loan amount is less than Rs 2 crore, irrespective of whether they have availed loan repayment moratorium or not, will be eligible for waiver of the compounding of interest. This will be for repayment dues pending between March and August, 2020.
  6. The SC is hearing a petition filed by an Agra resident Gajendra Sharma that demanded a waiver of interest charged by banks on the instalments that have been deferred for repayment by the Reserve Bank of India (RBI) through a six-month moratorium imposed in March. 
  7. A number of industrial bodies have joined the cause with the original petition demanding waiver of interest, or waiver of interest on interest on the suspended monthly instalments during the moratorium period.

Why was the committee set up?

  1. The Reserve Bank of India set it Kamath Committee in August 2020. 
  2. The RBI provided the broad contours of the one-time loan restructuring plan, the committee was tasked to recommend the sector-specific benchmark ranges for financial parameters to be factored into each resolution plan for borrowers with an aggregate exposure of Rs 1,500 crore or above at the time of invocation. 
  3. The process and conditions are being announced to ensure there is no evergreening of bad loans, and only genuine cases directly hit by Covid-19 stress are provided the facility of one-time restructuring. 
  4. The programme is being implemented as a six-month moratorium on repayments ended on August 31 and the economy faced contraction amid a continuing lockdown in several states.