Charging interest during loan moratorium is “detrimental”, says SC bench


The government should not prioritize economics over health, the Supreme Court said Thursday. The sighting came a day after the Reserve Bank of India (RBI) filed an affidavit stating that it was against a forced waiver of interest during the six-month moratorium period as it would affect the financial health of banks and put jeopardize the interests of depositors.

The court observed that such a position was “prejudicial” and requested a response from the Ministry of Finance and the RBI. “While on the one hand you grant a moratorium, on the other nothing (no relief) on interest. It’s more damaging in these difficult times, ”he said.

The three-judge panel, made up of Judges Ashok Bhushan, Sanjay Kishan Kaul and MR Shah, has set the next hearing in the case for June 12.

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In its observations, the House said that there were two aspects under consideration: no payment of interest on loans during the moratorium period and no interest to be charged on the interest.

The judiciary also objected to media coverage of the RBI’s response. “Does the RBI file the response first in the media, then in court?” Remarked Judge Bhushan.

The bench said they strongly advise against the practice and that it should not be repeated.

The House heard a plea challenging the charging of interest on the loans during the moratorium period. The plea, filed by Gajendra Sharma, a resident of Agra, sought a direction to declare the part of the RBI’s March 27 notification as something beyond its power or legal authority, as long as it charged interest on the loan amount during the moratorium period, which created difficulties for the applicant, as the borrower, and created an obstacle and obstruction to the “right to life” guaranteed by the article 21 of the Constitution of India.

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Senior lawyer Rajeev Dutta, representing the petitioner, said the RBI’s affidavit on Wednesday showed it viewed bank profitability more important as the rest of the country collapsed during the pandemic. He referred to the recent Supreme Court order in the Air India case regarding the reservation of intermediate seats on non-scheduled flights to bring in stranded Indians from abroad.

In its affidavit, the RBI had said the moratorium on loans, which was recently extended to August 31, was in the nature of an adjournment and could not be interpreted as a waiver. Giving an illustrative example, the RBI also said that banks could take a hit of around Rs 2 trillion if interest is waived during the moratorium period.


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“While the Reserve Bank is taking all possible measures to relieve the real sector of debt repayments due to the fallout from Covid-19, it does not consider it prudent or appropriate to opt for a forced waiver of interest, risking the financial viability of the banks it is responsible for regulating, and putting the interests of depositors at risk, ”the central bank said.

On May 23, Governor Shaktikanta Das extended the moratorium for an additional three months from June 1 for all term loans. The moratorium was originally announced on March 27 for three months from April 1.

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