Business

Can’t force waiver of interest on loans: RBI

Move will risk banks’ viability, SC told

The Reserve Bank of India (RBI) informed the Supreme Court on Wednesday that it considers neither prudent nor appropriate to go for a “forced waiver of interest” on loans by risking the financial viability of banks it is mandated to regulate and putting the interests of the depositors in jeopardy.”

The RBI was responding to a petition challenging the charging of interest rate on loans even during the three-month moratorium period declared amid the COVID-19 pandemic and national lockdown. The RBI had recently extended the moratorium till August 31.

The central bank said its regulatory package introduced amid the pandemic lockdown was “in its essence in the nature of a moratorium deferment and cannot be construed to be a waiver.”

“Banks are commercial entities that intermediate between depositors and borrowers. They are expected to run on viable commercial considerations,” the affidavit said. The RBI reasoned that banks are the custodians of the depositors’ money.

“Actions are guided primarily by the protection of depositors’ interests... Any borrowing arrangement is a commercial contract between the lender and the borrower... Interest or advances form an important source of income for banks,” the RBI said.

It said the regulatory package introducing the moratorium was permitted with the object of mitigating the burden of debt servicing brought about by the disruption on account of COVID-19 to ensure continuity of viable businesses.

A Bench led by Justice Ashok Bhushan had earlier issued a formal notice to the central bank and the Centre on a petition by Gajendra Sharma, who said though there was a moratorium on loans, there was also accrual of interest, which had to be paid in bulk or monthly after the lifting of the embargo.

The court had wanted to know why the government and the RBI seemed to think that natural justice was not violated when “the government on one hand ceased the working of individuals and on other hand is asking to pay the loan interest during moratorium.”

Central to the challenge in the petition was the RBI notification of March 27.

“The interest charged during moratorium period would be added up into the EMIs at the end of three-month forbearance. It will have to be paid in one go or be equally divided in all future EMIs. The monthly bill for customers will increase… In the present scenario, when all the means of livelihood has been curtailed by the Government of India by imposition of lockdown and the petitioner has no way to earn a livelihood, the imposition of interest will defeat the very purpose of permitting moratorium on loans,” the petitioner contended.

Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Jul 14, 2020 10:21:35 PM | https://www.thehindu.com/business/cant-force-waiver-of-interest-on-loans-rbi/article31742103.ece

Next Story