Charging interest during loan moratorium 'detrimental', says SC bench

The three judge bench, comprising justices Ashok Bhushan, Sanjay Kishan Kaul, and MR Shah, set the next hearing in the matter for June 12
The government should not prioritise economics over health, the Supreme Court said on Thursday. The observation came a day after the Reserve Bank of India (RBI) filed an affidavit saying it was against a forced waiver of interest during the six-month moratorium period as it would affect the financial health of banks and jeopardise the interests of depositors.

The court observed that such a stand was “detrimental”, and sought a response from the finance ministry and the RBI. “While on one end you are granting moratorium, on the other nothing (no relief) on interest. This is more detrimental in such challenging times,” it said. 

The three-judge Bench, comprising Justices Ashok Bhushan, Sanjay Kishan Kaul, and M R Shah, set the next hearing in the matter for June 12.

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

The Bench also took exception to the coverage of the RBI’s reply in the media. “Is the RBI filing the reply first in media and then in court?" remarked Justice Bhushan. 

The Bench said it highly “deprecated” the practice and this should not be repeated.

The Bench was hearing a plea challenging the levy of interest on loans during the moratorium period. The plea, filed by Agra resident Gajendra Sharma, had sought a direction to declare the portion of the RBI's March 27 notification as something beyond its legal power or authority, to the extent that it charged interest on the loan amount during the moratorium period, which created hardships to the petitioner, being borrower, and created hindrance and obstruction in the ‘right to life’ guaranteed by Article 21 of the Constitution of India.

Senior Advocate Rajeev Dutta, appearing for the petitioner, said the RBI’s affidavit on Wednesday showed that it considered profitability of banks more important while the rest of the country went down during the pandemic. He referred to the recent order of the apex court in the Air India matter on the booking of middle seats on non-scheduled flights to bring 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 a deferment and could not be construed to be a waiver. Giving an illustrative example, the RBI also said banks could take a hit of about Rs 2 trillion if interest was waived for the moratorium period.

“While the Reserve Bank is taking all possible measures to provide relief to the real sector with regard to debt repayments on account of the fallout of Covid-19, it does not consider it prudent or appropriate to go for a forced waiver of interest, risking the financial viability of the banks it is mandated to regulate, and putting the interests of the depositors in jeopardy,” the central bank had said.

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

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel