The Supreme Court (SC) on September 10 heard a batch of petitions seeking interest waiver and an extension of the loan moratorium granted by the Reserve Bank of India (RBI).
The bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah will next hear the petitions on September 28, and said no further adjournment will be allowed.
The top court said it has not yet decided on the issue of interest waiver, and is inclined to pass an order against levy of interest on interest. Interim orders will be in effect till then.
On September 3, the SC said banks should not declare accounts as non-performing assets (NPAs) until further orders and banks must not take coercive action against borrowers.
Senior Advocate Kapil Sibal, who appeared for real estate associations, on September 10 said that banks are downgrading accounts. "The RBI has been protecting the downgrading," he said.
Senior Advocate Rajiv Dutta, appearing for a few individual borrowers, sought a waiver of interest on interest.
"Imperative to make a statement for the Centre on non-charging of interest on interest," he said, as quoted by legal news website LiveLaw.
Senior advocate Harish Salve, appearing for the Indian Banks Association, stated that there was no default interest which was being accrued, and only compound interest was levied.
Here's what has happened:
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.
The measure was expected to give borrowers more time to clear payments of EMIs amid the economic fallout of the lockdown, without being classified as NPAs.
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.
In its annual report, the central bank also said the moratorium on loan repayments could have an impact on the financial health of banks.
"Although gross and net non-performing asset ratios had come down in March 2020 along with receding slippage ratios, the economic fallout of the pandemic is likely to test this resilience, especially since the regulatory accommodations announced in the wake of the outbreak have masked the consequent build-up of stress," the RBI said.