Bank’s COVID Moratorium Extension Cannot Override RBI NPA Norms: Himachal High Court Fixes NPA Date for OTS

Case at a Glance

A hydro-power company that defaulted on its term loan for September, October and November 2020 wanted its account treated as an NPA from November 2020, which would make it eligible under the bank’s OTS Scheme, 2024, and save about a year of interest. The bank said it had extended the COVID-19 moratorium at the borrower’s request and kept November 2021 as the NPA date. The Himachal Pradesh High Court held that the bank had no authority to extend the RBI moratorium beyond August 2020, that RBI norms override the bank’s own policy, and directed the bank to consider the OTS proposal treating the account as NPA from November 2020.

The petitioner developed a 3.30 MW run-of-the-river hydro project in Chamba district. A term loan sanctioned in 2016 and later enhanced was repaid through an escrow arrangement funded by electricity sales to HPSEBL. Generation fell in winter and the account became irregular from February 2020. Admittedly, the borrower defaulted completely in September, October and November 2020. The bank marked the account NPA only on 6 November 2021.

The bank’s OTS Scheme, 2024 covered accounts classified as D1–D3 or loss assets as on 31 December 2023. The bank’s statutory auditor opined that the account should have been NPA from November 2020. The bank instead obtained a chartered accountant’s opinion, kept the November 2021 date, and argued that it had accepted the borrower’s request to extend the moratorium, so the NPA question did not arise in November 2020.

The Key Question Before the Court

Can a bank, by extending the COVID-19 moratorium on its own, postpone the date on which an account must be classified as NPA under RBI norms?

RBI Norms, the Auditor’s Report and the OTS Scheme

The Court accepted that the defaults for September–November 2020 were undisputed and that escrow credits between March and August 2020 had been adjusted against earlier dues, so they did not cure the later defaults. It rejected the bank’s argument that instalments became half-yearly only from February 2021, holding that the RBI norm of 90 days of continuous default prevails. It held that the bank had no authority to extend the RBI moratorium beyond August 2020; even if its own policy allowed it, RBI instructions on NPA classification override that policy, and once those norms applied “it was bounden duty of the respondent-Bank to classify/mark the same as NPA.”

On the opinions, the Court found that the chartered accountant’s opinion, “being totally inconclusive, could not have been taken into consideration”, and that the scheme itself provides that where the core banking system and the statutory auditor differ, “the date provided in statutory auditor’s report/MOC report will be deemed final.” The bank’s loss of about a year’s interest could not defeat a valid claim. Citing Bijnor Urban Cooperative Bank v. Meenal Aggarwal and SBI v. Arvindra Electronics, the Court accepted that no borrower has a right to an OTS, but distinguished them because the petitioner sought only a correct NPA date for a scheme still in operation.

What the Court Actually Held

• The undisputed defaults for September, October and November 2020 required NPA classification under RBI norms.
• A bank cannot extend the RBI COVID-19 moratorium beyond August 2020 on its own; RBI instructions override the bank’s policy.
• Under the scheme, the statutory auditor’s NPA date prevails over the core banking system date, and an inconclusive private opinion cannot displace it.
• The petition was allowed; the bank must consider the petitioner’s case under the OTS Scheme, 2024 treating the account as NPA from November 2020, subject to the petitioner applying under the scheme.

Why This Judgment Matters

• It limits banks’ ability to use their own moratorium extensions to shift NPA dates.
• It gives weight to the statutory auditor’s report in OTS eligibility disputes.
• It shows that the correct NPA date can decide eligibility for, and the cost of, a settlement.

What Should Advocates Take Away From the Judgment?

For Borrowers

• Check whether your account’s NPA date matches RBI’s 90-day norm; a later date can cost interest and OTS eligibility.
• Rely on the statutory auditor’s report where the scheme makes it final.
• Apply under the OTS scheme in time; the relief here was subject to an application.

For Banks

• Do not rely on internal moratorium extensions to depart from RBI classification norms.
• Avoid displacing the statutory auditor’s opinion with an inconclusive private opinion.

Key Takeaways

Frequently Asked Questions

No. It directed the bank to consider the petitioner’s case under the OTS Scheme, 2024 treating the account as NPA from November 2020, subject to the petitioner applying.

The judgment records that it would bring the account within the scheme and save about one year of additional interest.

The operative direction is to consider the OTS on a November 2020 NPA date; the text read does not expressly quash the earlier classification or notices.

Conclusion