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CSB IAS ACADEMY

DENIAL OF MORATORIUM MUST NOT HURT
BUSINESS

Topics covered:Banking Sector & NBFCs

Context:
 Interpreting Reserve Bank of India’s March 27 circular on moratorium on

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payment of loan instalments, the Karnataka High Court has held that though
the circular grants discretionary power to banks to grant moratorium it is

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mandatory for the banks to ensure the continuity of viable businesses so that the
non-grant of a moratorium does not result in adversely affecting the survival and
continuity of a viable business.

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Details:
 “All borrowers are eligible to seek a moratorium. If a borrower were to seek it
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on the ground that continuity of its business would be affected and establish
the same, the borrower would as a matter of right be entitled for the moratorium
so that such continuity is not adversely affected,” the court said.
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 Further, the court said that when multiple banks are involved in a loan transaction,
one bank cannot deny extension of moratorium facility, when another or other
banks are willing to do so.
 The court also said that the provision of moratorium is applicable to all loans/
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advances and facilities extended by a lending institution, including the structured

loans such as Lease Rental Discounting (LRD), and not applicable only to the
term loans and working capital facilities.
 Also, the court directed the RBI to monitor the implementation of the March 27
circular on moratorium, including verification of whether there are approved
policies on moratorium by the respective boards of lending institutions, and to set
up an effective grievance redressal forum for aggrieved borrowers to complain
on improper or non-implementation of the circular.
 The court directed the RBI to ask all the banks to submit the board-approved
policy for approval to the RBI, to approve such policy, and verify if it contains
the objective criteria.
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Moratorium:
 Both the loan principal and interest are covered under the moratorium. This applies
to all loans outstanding on March 1.
 We must note that this is a postponement, not a waiver.
 RBI’s wordings clearly say that the tenor for term loans across the board may be
shifted by three months. This essentially means the loan will end 3 months
later than was originally slated.
 That was subsequently extended by another three months to August.
 Essentially, it means that payees won’t be treated as a defaulter even if you don’t
pay your EMI till May 2020, and your CIBIL score won’t be affected.
 This moratorium period will not come free, and since the interest will continue

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to accrue on the outstanding portion of the loan during the moratorium period, it
may increase the customers’ burden significantly.

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The installments include:
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 principal and/or interest components;
 bullet repayments; DE
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 Equated Monthly installments;
 credit card dues
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