There is “no merit in charging interest on interest” for deferred loan payment installments during the moratorium period announced in wake of the Coronavirus pandemic, Apex Court Judges said on Wednesday, asking Centre to discuss with RBI on making the loan repayment embargo more beneficial.
The observations came on a plea seeking relief from compounding interest that people who opt for a moratorium will be subjected to, & the Court adjourned the matter till August.
The bench comprising Justice Ashok Bhushan, Justice SK Kaul & Justice MR Shah said that “Once the moratorium is fixed then it should serve the desired purposes & we see no merit in charging interest on interest”.
The bench said that “Why do you (Centre) think that people are not accepting moratorium (on loan repayment)? Because they do not see any benefit in it. The Centre & RBI cannot throw up their hands now saying this is something between banks & public at large”.
The remark was prompted by a submission made by Solicitor General Tushar Mehta who informed the court that after a meeting between finance ministry & RBI, it emerged that the Centre could do little since the loan agreement is a contract between the bank & the borrower.
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The Judges said that “We are saying you may charge interest on the principal amount but not on the interest that is getting deferred”.
The Solicitor General agreed to convey the concerns of the Court to the Govt & have a relook on the possible solution before the next date of hearing.
Mr Mehta told the Supreme Court that waiving the interest completely will not be easy for banks as they have to pay interest to their depositors.
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He told the bench that “There are 133 lakh crore rupees in deposits with banks & interest has to be paid on them & the waiver will have a cascading effect”.
The Court’s observations came during the hearing on a petition filed by an Agra resident Gajendra Sharma who challenged RBI’s March 27 & May 22 notifications announcing moratorium on loan while permitting banks to levy interest. Under the scheme, the three month moratorium on EMIs from March-May was further extended till August 31. Indian Banks Association represented by senior advocate Harish Salve that the petition is premature. “We Court directed all parties to file their affidavits & relevant documents by the next date. He suggested the Court to hold on till August by when banks can assess sector-wise distress.
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