Loan moratorium: Consider not charging interest on interest, SC tells Centre, RBI

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The Supreme Court on Thursday gave two weeks to the Centre, the RBI and banks to put their heads together and chalk out sector-specific schemes with regard to loan restructuring, charging of interest on interest and other related issues.

A Bench led by Justice Ashok Bhushan — which had earlier directed that accounts not declared NPA till Aug 31 shall not to be declared NPA till further orders — wanted the Centre to consider not charging interest on interest on deferred EMIs during the moratorium.

“On the interest issue we have yet to take a decision. But on the aspect of interest on interest, we are inclined to pass an order that it may not be debited,” the Bench said.

The Bench made it clear that its interim order with regard to NPAs shall continue.

It also wanted the Centre and RBI to placed on record all decisions taken by them on for its perusal.

The top court posted the matter for further hearing on September 28 after Solicitor General Tushar Mehta said an expert committee has been set up to take decisions on the issue of moratorium extension, interest on interest during moratorium and other related issues.

Coming to the rescue of distressed borrowers, the top court had on September 3 ordered banks not to declare any loan account non performing asset (NPA) if it was not so on August 31 when the RBI’s loan repayment moratorium scheme ended.

Some of the petitioners wanted the court to direct banks not to downgrade the credit/asset classification of borrowers.

Announced by RBI in March for three months, the loan moratorium is a legal authorization to debtors to postpone payment of EMIs. it was extended to six months till August 31, 2020.

The RBI and Centre maintained that a complete interest waiver was not possible as banks too had to pay interest to depositors. RBI had said forced waiver of interest on term loans would jeopardise the financial health of banks and would also harm debtors’ interests.

Amid uncertainty over loan repayment moratorium scheme, the Centre and RBI had earlier told the court that it was capable of being extended up to two years in view of COVID-19. However, no formal decision had been taken in this regard.

The top court — which is seized of petitions demanding waiver of interest, or waiver of interest on interest on the suspended EMIs during moratorium — had earlier commented that there was no point in charging interest on interest.

The Bench had earlier said it was mainly considering two issues — if banks should be charging interest on interest and if the National Disaster Management Authority under the Disaster Management Act can provide relief with regard to loan repayment in disaster situations.

On the last date of hearing, Mehta had said banks were free to deal with borrowers and offer them solutions depending upon their specific problems and needs. A one-size-fits-all solution can’t be granted due to the difference in difficulties faced by different categories of borrowers, he said.

However, the Bench had said the RBI needed to issue certain directives to deal with the situation. “What you do, that’s for you to decide. Certain things have to be decided by the Government of India and the RBI. Everything can’t be left to the banks,” it had said.

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