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We won’t order any step that will hobble economy: SC:

Topics Covered: Separation of powers between various organs dispute redressal mechanisms and institutions.

We won’t order any step that will hobble economy: SC:


Context:

The Supreme Court has orally said it would not pass any order that would risk the economy going “haywire”.

What’s the issue?

The Supreme Court is hearing the government’s response to separate pleas made by industry, real estate and power sectors and others for debt relief, including waiver of interest, during the moratorium.

  • The Court said this after the Union government revealed that a blanket waiver of interest on debts incurred by all classes and categories of borrowers for the moratorium period would mean forgoing an estimated over ₹6 lakh crore.

Why is the Centre concerned?

  1. A possible crippling of the banking sector was one of the main reasons for “not even contemplating waiver interest” and restricting relief to “deferment of payment of instalments”.
  2. If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival.
  3. For every loan account, there were about 8.5 deposit accounts in the Indian banking system. Therefore, the government cannot do anything which would topple the economic scenario.

Various measures by the Government:

The Ministry of Finance, under the Disaster Management Act, and the RBI have acted proactively.

  1. The government had sanctioned over ₹90,800-crore liquidity injection for the power distribution companies. This would enable them to pay their outstanding dues to power producers and transmission companies.
  2. In the real estate sector, a government advisory was issued allowing the extension of registration and completion dates of projects under Real Estate Regulatory Authorities by treating COVID-19 as an event of force-majeure.
  3. The government spelt relief for Micro, Small and Medium Enterprises (MSME) sector by launching an emergency credit line of up to ₹3 lakh crore, backed by 100% government guarantee to enable the MSMEs to get back to regular operations. A sum of ₹1.87 lakh crore had been sanctioned.
  4. The resolution framework announced by the RBI took care of the apprehensions raised about the possible downgrading of loan accounts from standard to non-performing asset (NPA) and consequent impact on ratings.
  5. The Securities and Exchange Board of India had issued circulars to relax the “recognition” of defaults committed during moratorium.
  6. The Kamath Committee set up by the RBI has recommended financial parameters for debt restructuring of 26 sectors affected by COVID-19.

Sources: the Hindu.