SC seeks reply from RBI and FM on waiver of interest on loans

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On Thursday, the Apex Court asked the Reserve Bank of India (RBI) & the Union Finance Ministry to file a joint response on whether interest on loans can be waived for the 6-month moratorium period.

In March, the Central Bank had allowed a 3-Month moratorium on payment of all term loans due between March 1 & May 31. On May 22, the moratorium was extended till Aug 31.

On May 26, the Supreme Court had sought RBI’s response after petitioner Gajendra Sharma sought interest waiver during the moratorium period. In an affidavit filed on Wednesday, RBI said it does not consider it prudent or appropriate to forcefully waive interest, which would risk the financial viability of the banks it is mandated to regulate, & put the interests of the depositors in jeopardy.

The RBI affidavit detailed the amount of losses that would have to be absorbed by the financial sector in case the moratorium was declared as an interest-free period.

RBI said that “The weighted average lending rate for banks as on Dec 3, 2019, was 10.40 per cent, & the outstanding of term loans was ₹59,52,192 crore. Assuming that the moratorium was granted to only 65 per cent of the above outstanding, the monthly interest that will be foregone by the banks in case moratorium period has to be declared interest-free will be approximately ₹33,500 crore”.

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A 3-Judge bench comprising Justice Ashok Bhushan, Justice MR Shah & Justice SK.Kaul heard the submission through videoconferencing.

Justice Bhushan said there were 2 main issues; the first was whether interest should be charged during the moratorium period or not; the second issue was whether interest should be charged on the accrued interest.

Justice Ashok Bhushan said that “There are two issues in this: No interest during moratorium period, & no interest on interest”.

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While referring to RBI’s reply, Senior Lawyer Rajiv Dutta, appearing for the petitioner, said, “The cat is out of bag…They’re saying profitability of bank prime. So, only the banks should earn & the rest of the country goes down under?”

The Bench said that “We know, economic aspect should not be higher than the health of people”.

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