Clarify Stand On Waiving Interest During Moratorium, Top Court Tells Finance Ministry

The Supreme Court asked the Finance Ministry to clarify its stand on whether interest could be waived and interest on interest could be charged for the moratorium period, while hearing the petition on waiver of interest on loan repayment during moratorium. Justice Ashok Bhushan sought the clarification in response to the Reserve Bank's argument that an interest waiver would jeopardise the banks' financial health. The top court has given time to the petitioners to respond to RBI affidavit and fixed the next hearing on June 12

The Reserve Bank of India (RBI) had petitioned the Supreme Court on Wednesday that there cannot be an interest waiver during moratorium on term loan repayment as such a move will put the financial health and stability of banks at risk. It is not "prudent or appropriate to go for a forced waiver of interest, risking the financial viability of the banks in its mandate to regulate, and putting the interests of depositors in jeopardy," RBI had submitted in an affidavit to the top court.

In a related development, the top court questioned RBI on leaking the affidavit to the media before it reached the judges and asserted that should not happen in the future.

The RBI had announced a six-month moratorium to borrowers on payment of installments, in effect, extending the EMI payments till August, in an attempt to ease the financial stress arising from Covid-19 lockdown. "The regulatory package is, in its essence, in the nature of moratorium or deferment and cannot be construed to be a waver," RBI pointed out.

The top court had earlier sought the central bank's response to a public interest litigation (PIL) on whether interest should be charged on moratorium that may be availed by borrowers on loan repayment. The petitioner Gajendra Sharma had moved the top court and argued that levying interest would result in increased EMIs accruing at a later stage and therefore, interest should not be charged for the moratorium period.

"The objective behind the RBI's move (moratorium) was to mitigate the burden of debt servicing on account of the disruption caused due to the COVID-19 pandemic and the consequent lockdown. The same was done keeping in mind the necessity to ensure continuity of viable businesses," the central bank had stressed in its affidavit to the court.