The Supreme Court (SC) on September 3 heard a batch of petitions seeking interest waiver on loan moratorium granted by Reserve Bank of India (RBI).
A bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah heard the petitions. The top court will continue the hearing on September 10.
Justice Bhushan observed that banks should not declare accounts as a non-performing assets (NPA) for two months and banks must not take coercive action against borrowers.
However, taking banks' submissions on record, it said "accounts not declared NPAs till August 31 not to be declared NPAs till further orders."
Also read: Loan moratorium ends: What should borrowers do now?
Solicitor General Tushar Mehta to SC:
> Impact of COVID is faced by everyone but the impact is different for every sector. Impact is good also on sone sectors like Pharma sector, IT sector, (Inputs from legal news website Bar & Bench)
> The idea of the moratorium was to defer repayment to ease the burden caused by COVID and lockdown so that business can manage working capital. The idea was not to waive off interest. The effort is that those who are affected by COVID and facing distress get the benefit and those who are defaulters are not able to take benefit.
> Accounts that do not become NPAs on September 1 (after the moratorium ends).
> The expert committee will come up with sector specific guidelines on September 6.
> The DMA provides that the government "may" take action. So far, NDMA has deemed it fit for the RBI to adopt supervisory role.
Also read: Interest waiver on moratorium loans: Waiver or not, someone is bound to get hurt
> "The main grievance of the petitioners is that they have not been given the adequate relief and the NDMA under the Disaster Management Act (DMA) has not been active to give relief," said Justice Bhushan. (Inputs from legal news website Bar & Bench)
> "Question is about the demands of compound interest in the meantime. Moratorium and penal interest cannot go together. RBI will have to clarify," said Justice Reddy.
> "No account should be declared NPA for two months and the banks should not take action against borrowers which is coercive. We have to protect them," said Justice Bhushan. (Referring to accounts not classified as NPA as on August 31)
Senior Advocate Harish Salve for the Indian Banks Association (IBA) to SC:
> Common man's problems are different from those of the corporates. If kind of borrowers and the type of borrowing is identified then specified relief can be provided. Individual and industrial problems need to be addressed differently. (Inputs from legal news website Bar & Bench)
> Those who defaulted earlier in 2019 may seek relief under another scheme but not under the COVID-related scheme. They may seek relief under general scheme which also may take into account COVID.
> Moratorium is not included in default period. After moratorium is over, then default period of 90 days will start. We are not giving a concession. In fact banks don't like to declare NPAs. They have been pulled up for not declaring NPAs.
> Compound interest is charged as a contractual interest and penal interest is not being charged. On non-payment, the interest becomes penal compounding interest.
Here's a quick recap of what's happened so far:
The SC has previously said there is "no merit in charging interest on interest".
The RBI had on June 4 said lenders will lose Rs 2 lakh crore if interest is waived during the moratorium period.
Senior Advocate Rajiv Dutta, who appeared for a petitioner, on September 2 said "interest on interest is absolutely and prima facie wrong and they cannot charge it".
The RBI had in March announced a moratorium on repayment of term deposits for three months, which was later extended till August 31. The move was intended to provide borrowers relief during the COVID-19 pandemic.