Loan Moratorium: Supreme Court Asks Government To Consider Waiving ‘Interest On Interest’
The Reserve Bank of India (RBI) logo is displayed on a wall inside the central bank’s regional headquarters in New Delhi, India. (Photographer: T. Narayan/Bloomberg)

Loan Moratorium: Supreme Court Asks Government To Consider Waiving ‘Interest On Interest’

The Supreme Court granted more time to the Reserve Bank of India and the Finance Ministry to review their stance on the plea seeking interest waiver on loans under moratorium during the Covid-19 pandemic.

The three-judge bench headed by Justice Ashok Bhushan, however, said it would only consider the issue of charging ‘interest on interest’ in case of deferred loan payments under the central bank-mandated six-month freeze.

The top court suggested that either banks can absorb waiver of interest on interest or the government can help banks to deal with the waiver. The government can consider intervening in the issue and not everything can be left with the banks, it said.

At the start of the hearing, Solicitor General Tushar Mehta, appearing for the RBI and the Finance Ministry, took a stand against the waiver of interest and told the court that it will risk the financial stability of the banking system. “Moratorium only means a deferment”, he said.

The Supreme Court was hearing a petition filed by Gajendra Sharma, who had told the court that levying interest on loans under moratorium defeats the move’s objective. While the government ceased work, it’s asking individuals to pay interest on loans during the moratorium period, the petition read.

In a reply filed on June 3, the RBI had opposed a waiver. But the top court was dissatisfied with its response. The Solicitor General had then said he would convene a meeting with the officers of the Finance Ministry and the RBI and inform the court.

The central government on Wednesday told the top court that the banks also have to issue interest to their depositors and it is not advisable to waive interest on loans for a period of six months.

State Bank of India, the nation’s largest lender, opposed the across the board direction to waive interest and informed that 90% of the borrowers did not even seek a moratorium.

Senior Advocate Harish Salve, appearing on behalf of the Banks Association, argued that the petition is premature. “We are still in the tunnel. Let us wait to come out of the tunnel,” Salve told the court, suggesting the case can be adjourned for three months.

The top court adjourned the hearing till first week of August.

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