The Hearing on Public Interest Litigation petitions against the levy of interest on loan repayments deferred availing the 6-month moratorium allowed by the Reserve Bank of India was adjourned todayby Supreme Courttill August first week.
The Centre and Reserve Bank of India was told to “review” the issue and asked Indian Banks Association to see if new norms could be brought by a bench headed by Justice Ashok Bhushan.
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The Bench ordered, “The issues in pleas are that Interest should not be charged during moratorium and at least interest on interest should not be charged.Let the petition be listed again by 1st week of August and the Centre and RBI will review the issue. Indian Banks Association will see if new guidelines can be brought in force“
Petitions filed by Gajendra Sharma and few others challenging the RBI Circulars of March 27 and May 22, to levy interest on loans during the 6-month moratorium was heard by the bench, also comprising of Justices S K Kaul and M R Shah.
Today, Solicitor General of India, Tushar Mehta, during the hearing expressed concerns about interest waiver affecting the stability of banks and said that moratorium was only a ‘deferment’ of payment in effect and other obligations should remain intact and that the Interest waiver will jeopardize interest of depositors.
The worry of the Centre and the RBI was about the “serious cascading effect on deposits” caused by waiver of interest, said the SG.
The ‘times of pandemic cannot be treated as normal circumstances’ observed the bench.
Justice S K Kaul observed, “Our limited concern is to ease burden during these trying times.”
The Centre cannot leave everything to the banks, remarked the bench.
The concerns of the banks were expressed by Senior Advocate Harish Salve, appearing for the Indian Banks Association.
Salve said “According to authoritative estimates, the world will see a meltdown by 2022. Not charging interest during this period will put the entire banking sector under a lot of distress“,
The interest waiver can be considered only on a “case to case” basis as some sectors were doing well during the pandemic, citing the example of Netflix, said Salve.
He said, simply doing away with interest during this time is not a viable thing to do.
Submissions that the banks’ obligations to the depositors are in force even during pandemic were given by Senior Advocate MukulRohatgi, appearing for State Bank of India.
Rohatgi said, “The benefit of deferment has to come with a cost. It cannot be availed and not come at a cost.90% of borrowers have not even sought a moratorium because they know it is not free. Interest waiver can’t be issued like a free gift.“
People are hesitant to avail moratorium because of accrual of interest, responded the Bench.
Justice M R Shah remarked “Once you allow moratorium, you have to see that the same is availed. That’s why people are not availing it.”
The bench understood the concerns of the banks, and was only talking of waiver of interest on interest.
Justice Kaul said, “We are aware of all these concerns. We are talking only about interest on interest. For these three months, you have deferred but then you have not done away with interest on interest.Can banks absorb this portion or can central government equip banks to absorb this portion of waiver of interest on interest?. That’s the sole question.“
The banks will have to classify accounts as Non Performing Assets (NPAs) if borrowers don’t give interest on interest, pointed out the Bench.
Senior Advocate Rajiv Datta, appearing for the petitioner was “obliged” to the court for understanding the troubles of petitioners and said “No country shall charge compound interest. Yes some sectors are doing better. Today cycles are selling heavily. That’s not the point! I only want the moratorium period interest on interest waiver. We are a humble citizenry! 90 per cent Indians have not opted for deferment! Today the RBI wants to make money out of banks? In this serious situation? What about those people who have taken huge sums of money from banks and have fled the country? How were they excused?”
A counter-affidavit in the matter stating that the waiver of interest would affect the financial health of lending institutions has been filed by the RBI.
The apex court had expressed concerns over allowing levy of interest during the moratorium period allowed for loan repaymentsin the previous hearing held on June 4.
The bench had orally observed on that occasion that accrual of interest while allowing moratorium is “detrimental”.