‘RBI moratorium valid for all credit facilities’

Observing that the Reserve Bank of India (RBI) has granted moratorium not only for term loans but for all financial arrangements between banks and customers, the

Observing that the Reserve Bank of India (RBI) has granted moratorium not only for term loans but for all financial arrangements between banks and customers, the Bombay high court (HC) on Monday granted the benefit of a 90-day moratorium on loans to a Mumbai-based electrical engineering firm.

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Justice KR Shriram said in the case of IMP Powers Limited, the 90-day period for declaring an account a non-performing asset (NPA) will stop accruing from March 1 and will restart from June 1. Thus, the firm’s cash credit account will not be declared an NPA till June 1, despite the 90-day period ending on April 16.

IMP Powers Limited, a medium enterprise involved in the manufacture of electrical equipment, moved the HC apprehending that its banker, Karnataka Bank, may declare its credit facility an NPA, as mentioned in a circular issued by the RBI in September 2001.

The circular provided that if any account enjoying credit facilities with a bank has remained overdrawn beyond the sanctioned limit for a continuous period of more than 90 days, it will be classified as an NPA.

Counsel for IMP Powers, senior advocate Dr Birendra Saraf, pointed out that Karnataka Bank had sanctioned a fund-based cash credit limit of ₹2 crore; packing credit limit of ₹7.50 crore; bank guarantee limit with interchangeability to letter of credit of ₹36.75 crore to IMP Powers. However, the account has remained overdrawn since January 16, primarily due to the lockdown.

Justice Shriram also took into consideration the RBI circular dated March 27, 2020, issued to all the banks and financial institutions, stating that all commercial banks, including regional rural banks, are permitted to allow a moratorium of three months for payment on instalments of all term loans outstanding on March 1, 2020.

“The Reserve Bank of India has granted moratorium not only for term loans but all kinds of financial arrangements between a customer and the bank,” said the judge, while granting relief to the firm.