The lenders of the nation to resume the act of classifying delinquent debt as bad loans, directs SC

Aryan Grover

A three-judge panel of the Supreme Court, headed by Justice Ashok Bhushan, delivered the verdict which allowed the lenders of the nation to resume the act of classifying delinquent debt as bad loans. This reverses a ruling which was passed last year, which postponed the disclosure of bad credit.

This is in response to a request presented by the federal government and the Reserve Bank of India to the Apex court, who sought to overturn an earlier order which barred the categorization of loans as non-performing.

The order should provide relief to investors who have not been able to scale the impact of the COVID-19 pandemic on the asset quality of banks. In a loan moratorium granted earlier, a relaxation of six months was provided on classifying borrowings as bad loans which was later extended.

The court in its ruling also provided for all the interest accumulated in this six-month period to be waived off for all categories of borrowers. Foregoing this amount could cost as much as $2 billion. Although the government did agree to bear the 60 billion rupee cost for smaller borrowers, it remains unclear who will take up the additional expenditure.

The Apex Court, however, decided not to extend the loan-moratorium period granted in lieu of the COVID-19 pandemic for it imposes a huge burden on the lenders who are already having to forego a substantial amount due to the moratorium, severely affecting their net worth and lending capacity.

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