Supreme Court: Consider interest waiver during moratorium : 18-06-2020

Pulling up the government over the issue of interest waiver on loan moratorium during the corona lockdown, the Supreme Court on Wednesday said the issue cannot be left between borrowers and lenders and it is for the finance ministry and RBI to review the matter and consider instructing banks to give some relief to borrowers.

“If the Centre announced a moratorium, it must ensure the benefits are given to customers purposefully… The Central government can’t raise its hands in helplessness. It can’t say now that it is between banks and customers,” a Bench led by Justice Ashok Bhushan told Solicitor General Tushar Mehta.

Mehta, representing both the RBI and finance ministry, said that there is a contract between the banks and the borrowers, before interfering in that the government has to keep in mind that banks are also under obligation to pay compound interest rates to their depositors.

Earlier, the RBI had also informed the SC that any “forced” interest waiver on loan moratorium will risk financial viability and hurt banks by as much as Rs 2 lakh crore (1% of GDP).

The top court had last week asked the finance ministry and the RBI to meet and decide on a waiver of interest on deferred loan repayments during the moratorium period.

The Central bank had on May 22 extended moratorium on term loans till August 31 amid the nationwide lockdown due to Covid-19. In March, it had allowed a three-month moratorium on payment of all term loans due between March 1 and May 31.

Senior counsel Harish Salve and Mukul Rohatgi, who appeared for Indian Bank Association and State Bank of India, respectively, argued that the banks will have to consider payment deferrals on a case-to-case and sector-to-sector basis.

Both SBI and IBA had opposed grant of interest waiver, saying it was not “advisable” as it would cast a huge burden on the banks, will erode flow of funds to industry and businesses and depositors will also lose faith in the banking sector. Besides, the interest waiver would have wider ramifications not only for the entire banking industry, but also for the economy.

Rohatgi said the 90% of the borrowers have not availed the loan moratorium scheme and it is also because the scheme was not envisaged as a free gift to anyone. “There cannot be an across-the-board direction to banks,” he said, adding that most of the depositors of banks are people like pensioners, whose interests have to be considered before asking banks to take hits.

Salve termed it as “premature” for the courts to entertain a petition like this, when the Covid-19 pandemic is far from over. He said the banks will have to look at granting sector wise reliefs or relief on a case-to-case basis, but a blanket order is not acceptable.

“We are still in the tunnel… let’s wait till we get out of the tunnel,” Salve said, while suggesting that the case be heard after a few months when a clearer picture emerges.

Salve said the agriculture sector might need special loan restructuring, or it could be any other sector, so courts should wait a few months before adjudicating on the issue.

The bench posted the matter for further hearing in the first week of August. The court was hearing a petition challenging a part of the March circular with regard to recovery of interest accrued on the outstanding portion of the term loans during the moratorium period amid coronavirus pandemic.

Source : Financial Express