Credai sought clarification on whether the notification made it mandatory for all non-banking finance companies (NBFC) to be eligible for loan moratorium or the bank could use its discretion to grant this benefit.

Senior advocate Harish Salve, appearing for CREDAI, apprised the three-judge bench, headed by Justice L Nageswara Rao, that RBI had issued a circular which made the moratorium an entitlement. The issue arose when the matter came to court and the RBI in its reply said it was up to the banks to grant the moratorium.

The RBI governor’s announcement indicated that it was binding, Salve said. "Our NBFCs have large loans. Banks are saying we don't need to give you relief," he added.

Solicitor general Tushar Mehta told the bench, which also comprised Justices Sanjay Kishan Kaul and BR Gavai, that he would take instructions from RBI, finance ministry and the Securities and Exchange Board of India on the matter.

“After seeing the package announced by the government, this issue may be sorted out," Salve added.

Justice Kaul said, “There needs to be complete clarity on this issue."

CREDAI had approached the top court on 12 May and according to an RBI circular on 27 March, banks and other financial institutions are allowed to provide a moratorium of three months for all term loan instalments that are due for payment between 1 March and 31 May.

Term loans include all kinds of retail loans such as vehicle loans, home loans and personal loans, agricultural term loans as well as crop loans. The central bank has clarified that credit card dues will also be eligible for the moratorium. The moratorium will be provided for both interest as well as principal repayment, which means the moratorium.

A loan moratorium essentially waives repayments for a fixed period. It is not a concession and simply defers payment to provide some relief to borrowers facing liquidity issues.