The Supreme Court on Thursday called on the Reserve Bank of India (RBI) to ensure that the central bank’s circular dated Jan. three-month moratorium on loan repayment is in “letter and spirit” in the midst of Covid-19 pandemic.

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A bank led by Justice NV Ramana said the central banker should ensure that its loan repayment freeze between March 1 and May 31 is not diluted and benefits borrowers during these troubled times.

“We are instructing the Reserve Bank of India to ensure the implementation of the circular of March 27, 2020, both verbally and in writing,” said the court order.

The court told Attorney General Tushar Mehta that the borrowers did not appear to have really benefited from the RBI’s gesture.

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However, the bank, which includes Judges Sanjay Kishan Kaul and BR Gavai, who obtained up to four PILs in implementing the circular, said it was not intervening as none of the petitioners was actually an aggrieved party.

On March 27, the RBI enacted a series of measures to review the financial implications of the lockdown. It gave banks and financial institutions the freedom to allow a moratorium on outstanding loans by March 1 if the borrower so requests. The repayment schedule for these loans and the remaining term would be postponed by three months after the moratorium period had expired. During the moratorium, the outstanding portion would continue to accrue interest on the loans.

Case of NBFCs

Sources in the RBI said the court order was a blow on the ankles of banks that did not extend the moratorium benefit to many customers, most notably the non-bank finance companies (NBFCs), including home finance companies.

The RBI had provided banks with a favorable regulatory framework to extend the credit moratorium by allowing them not to classify the account as a distressed asset even if the borrower had used the moratorium.

However, the banks were reluctant to extend the moratorium to the NBFCs. As a result, these companies are heading for a liquidity crisis as they need to extend such a moratorium to their borrowers but are not getting such a benefit from their lenders.

(With inputs from Manojit Saha)