‘No merit in charging interest on interest’
Once moratorium is fixed then government should consider interfering as it cannot leave everything to banks
NEW DELHI: The Supreme Court Wednesday said there is "no merit in charging interest on interest" for deferred loan payment installments during the moratorium period announced in wake of the COVID-19 pandemic. A bench headed by Justice Ashok Bhushan observed that once moratorium is fixed then it should serve the desired purposes and the government should consider interfering in the matter as it cannot leave everything to banks.
"Once the moratorium is fixed then it should serve the desired purposes and we see no merit in charging interest on interest," the bench, also comprising Justices S K Kaul and Justice M R Shah, orally observed.
The counsel for petitioner Gajendra Sharma, resident of Agra, said that under the Disaster Management Act, the Central Government has ample power and jurisdiction to grant relief with regard to loan which is specifically provided for.
The lawyer also said the circular of the Reserve Bank of India of March 27, granted moratorium but no substantial relief has been given to the borrowers. Noting the submission, the apex court said, It is submitted that if moratorium is being granted for a period of three months, the entire amount payable including principal and interest should not be charged during moratorium period. Secondly, at least the demand of interest on interest should not be made and these reliefs can be extended by the Central Government and the Reserve Bank of India.
The bench, prima facie, was also of the same view but granted more time to the Centre and the RBI to have a relook of the matter and posted it for hearing in the first week of August.
Gajendra Sharma, in his plea, has sought a direction to declare the portion of the RBI'S March 27 notification "as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which created hardship to him being a borrower and created hindrance and obstruction in 'right to life' guaranteed by Article 21 of the Constitution.. Solicitor General Tushar Mehta, appearing for the Centre and the Reserve Bank of India, told the apex court that waiving the interest completely will not be easy for banks as they have to pay interest to their depositors. "There are 133 lakh crore rupees in deposits with banks and interest has to be paid on them and the waiver will have a cascading effect," Mehta told the bench.
The bench adjourned the hearing for allowing the Centre and the RBI to review the situation and asked the Indian Banks Association to examine whether they can bring new guidelines in the meantime on the issue of loan moratorium. Mehta argued that complete waiver of interest during moratorium period might risk the financial stability of banks and this would put the interests of depositors in jeopardy. The counsel representing banks association and State Bank of India (SBI) urged the bench that the matter should be deferred by three months.