April , 2020
Mortgage holiday pleas during ongoing crisis
14:54 pm

Aritra Mitra


According to the Confederation of the Indian Industries (CII), in FY21, India’s GDP growth could fall below 5% in the absence of an immediate policy action. The outbreak of the coronavirus that has brought Indian industries to a standstill is a major reason for this fall. Already the demand for a mortgage holiday has been floated by various business leaders.

Indian corporates have urged the government to provide relief measures in wake of the fast spreading coronavirus pandemic. The formation of an economic response task force to help to cope with the impact of the outbreak has been recently announced by Prime Minister Narendra Modi. The outbreak has interrupted supply chains from overseas and is also threatening to impact domestic production as quarantine measures have restricted the movement of workers.

Western countries like the US, UK and Italy have already announced measures to provide a respite to mortgage takers who are anticipating a loss of income and resultant job losses. Praveen Khandelwal, General Secretary, Confederation of All India Traders wrote a letter to Finance Minister Nirmala Sitharaman on March 14, 2020 where he suggested the need of insurance. He wrote, “It may be held that commercial property (traders, shops, manufacturing units etc.) that becomes uninhabitable or otherwise not fit for use temporarily, leading to losses to self, suppliers, employees, customers, financial institutions or stakeholders because of coronavirus, certainly deserves an insurance coverage.” In the letter, Khandelwal further advised that the Insurance Regulatory Development Authority (IRDA) to mandate insurers in India to introduce insurance coverage for the disruption in business.

In a letter to Prime Minister Narendra Modi, Hemant Kanoria, Chairman, Srei Infrastructure Finance, suggested some immediate and effective steps in order to infuse liquidity in the economy. He pleaded that banks should waive penalty and late fee on mortgages. He suggested that a moratorium on debt repayments for a year can assuage the business continuity risk of corporates and individuals. He also cited that examples of the governments in the US, UK, Italy and other countries that have already advised their banks and financial institutions to declare mortgage holidays for their customers along with waiving of late fees and other penalties. A relaxation of norms on the existing loans has also been suggested.

Kanoria has stressed on the importance of immediate liquidity infusion in the economy. He suggested that clearance of all outstanding payments to contractors and businesses by the central and state government agencies can prove to be helpful. He wrote, “Huge sums of money are stuck in arbitration awards given for several projects which have got dragged into High Courts and the Supreme Court leading to inordinate delays. The government should honour the arbitration awards and instead of further litigation, release the payments so that business and industry will get liquidity to tide over the present crisis.”

Due to the ongoing crisis, the micro, small & medium enterprises (MSMEs) are the worst sufferers. Kanoria suggested that it must be ensured that their operations are not hindered. For that, it is essential to ensure a steady flow of liquidity for NBFCs who happen to be the principal source of credit for MSMEs. In his letter, Kanoria has suggested several proposals in order to ensure the steady flow of liquidity for NBFCs. He wrote that it must be ensured that “the banks do not pressurise the NBFCs to use the funds received to clear previous loans because if the funds are not deployed in fresh lending, economic activity will not pick up.”

A relaxation on the forbearance norms has been proposed. Kanoria has also urged for allowance of full GST credit. He wrote, “Under Sec. 17(4) of the Central GST Act, 2017, an NBFC has the option to avail input tax credit to the extent of 50% and the balance 50% to lapse. Such an option not only opens future litigation possibilities, but also deprives the NBFC to claim GST credit to a large extent. As a result, GST credit attributable to goods procured for leasing are reduced to an extent of 50% instead of 100% as was available under the state VAT laws.” Under the present circumstances, Sec. 17(4) should be omitted from the legislation allowing NBFCs to avail 100% credit which would help them to contribute better to economic growth.

Kanoria also feels the need to remove section 29A of Insolvency and Bankruptcy Code (IBC) and wrote that it “should be made applicable only in cases where perpetration of fraud by promoters has been established through a forensic audit. Otherwise, in cases where the promoters have been victims of circumstances or factors beyond their control, they should be allowed to bid for their companies during the resolution process. That would ensure better realisation of value thereby improving the recovery by lenders.”

The government has announced a relief package of `1.7 lakh crore. Since the last Monetary Policy Committee meeting in February, 2020, the Reserve Bank of India has injected liquidity of `2.8 lakh crore which is equivalent to 1.4% of the GDP. It further reduced the key policy repo rate by 75 basis points to a historic low of 4.4%. As part of the liquidity measures, it has lowered the cash reserve ratio (CRR) and the proportion of cash that banks need to keep with the RBI. A three-month moratorium on loan repayments was declared across the board for companies and individuals. In order to aid the corporate borrowers, banks have been given flexibility in determining working capital cycles and limits Individuals with home and car loans will also get a similar three-month relief in repaying loans.

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