SC asks RBI, Finmin to reply on interest relief

nNEWDELHI: The Supreme Court on Thursday asked the Reserve Bank of India (RBI) and the Union finance ministry to file a joint response on whether interest on loans can be waived for the sixmonth moratorium period.

In March, the central bank had allowed a three-month moratorium on payment of all term loans due between March 1 and May 31. On May 22, the moratorium was extended till August 31.

On May 26, the apex 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, and 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. “The weighted average lending rate for banks as on December 3, 2019 was 10.40%, and the outstanding of term loans was ₹59,52,192 crore. Assuming that the moratorium was granted to only 65% 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,” RBI said.

A three-judge bench comprising Justices Ashok Bhushan, MR Shah and Sk.kaul heard the submission through videoconferencing.

Justice Bhushan said there were two 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.

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

While referring to RBI’S reply, senior advocate 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 and the rest of the country goes down under?”

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