The Supreme Court on Friday asked the Ministry of Finance and the Reserve Bank of India (RBI) to hold a detailed joint meeting in the next three days to clear the air on whether the deferment of loan interest in place to help borrowers through their financial crisis during the national lockdown will lead to accrual of further interest once the freeze is lifted after August 31.
A Bench of Justices Ashok Bhushan, S.K. Kaul and M.R. Shah said the court is trying to strike a balance between the interests of the banks and the borrowers.
Need for balance
“We are trying to balance. Whether there can be a system worked out... Our concern in these proceedings is only whether the interest that has been deferred will be added to charges payable later and whether there will be interest on the interest,” Justice Kaul addressed lawyers representing the parties.
The court said, unlike what the RBI apprehends in its response, it is not considering a complete waiver of interest but is only concerned that postponement of interest shouldn't accrue further interest on it.
The court listed the case for June 17 to hear the outcome of the meeting between the RBI and the Finance Ministry.
Earlier, the RBI had filed an affidavit in court saying it does not consider it prudent or appropriate to go for a forced waiver of interest, risking the financial viability of the banks it is mandated to regulate and putting the interests of the depositors in jeopardy.
“If the RBI reply goes much beyond the query posed by us, there will be a lot of opinions on it. Efforts will be made to sway it one way or another,” the Bench remarked.
The court is hearing a petition filed by Gajendra Sharma 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.
‘Not a waiver’
The central banker, in its affidavit, had 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 had said.
It had reasoned that banks were custodians of the depositors' money.
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 petition has contended.
