COVID -19 Regulatory Package issued by Reserve Bank of India on 27.03.2020 

Banking - Statement of Development Regulatory Policy dated 27.03.2020 - COVID -19 Regulatory Package issued by Reserve Bank of India on 27.03.2020 - Clause 2, 5 - Re-scheduling of the payments-term loans and working capital facilities - Moratorium of three months between March 1, 2020 and May 31, 2020 – Classification  as  Special  Mention  Account  (SMA) and Non-Performing Asset(NPA) – Reading of the Statement on Development and Regulatory Policies issued by RBI on 27th March, 2020 along with Regulatory Package issued on March 27, 2020 prima facie shows that the intention of the RBI is to maintain status quo as on 01.03.2020 with regard to the all the instalments payment for which had to be made post 01.03.2020 till 31.05.2020 - If a borrower was duly servicing the account until 01.03.2020 and no instalment was overdue, the borrower’s account would have been classified as a Standard Asset, i.e., there being no default, which means that the account would not be classified as a SMA – 1 or SMA– 2 - If an account is a standard account and not classified as SMA –1- or SMA – 2, it would have to go through the process of SMA-1 and SMA-2 prior to being declared as a non-performing asset - The restriction on change in classification as mentioned in the Regulatory Package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020 and status quo qua the classification as SMA-2 shall have to be maintained -  The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment -  Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India, paragraph 4.2.2 –  Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated, June 7, 2019 -  Clarification issued by letter dated 31.03.2020 by the Chief General Manager–in – charge Department of Regulation of the Reserve Bank of India to the Chairman, Indian Banks Association.  #2020 PLRIJ e@journal 81 (Del.)  

Contention of bank  that RBI guidelines and package are not applicable to the case of the petitioner, in as much as, the petitioner was already in default as on 01.03.2020 and the package is applicable only to those instalments which fall due on 01.03.2020 and also only to those borrowers who were properly servicing their account till 01.02.2020 and were not in default.

Held, If the Regulatory Package is applicable only to Standard Asset accounts, there was no necessity for the RBI to refer to Classification of an account as a Non-Performing Asset (NPA) in its Regulatory Package and RBI could have only referred to the change of classification as a SMA. [Para 25]

Held further, The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment. However, stipulated interest and penal charges shall continue to accrue on the outstanding payment even during the moratorium period. If post the moratorium period borrower fails to pay the said instalment, classification would then automatically change as per the IRAC guidelines. 

 

 

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