No benefit from RBI’s loan moratorium scheme: SC

Banks have requested time till August 31 to submit loan details to the court.

Banks have requested time till August 31 to submit loan details to the court.  

In view of pandemic, no penalty should be levied, says Bench

The Supreme Court on Wednesday said there were few takers for the Reserve Bank of India’s loan moratorium scheme during the lockdown because people know there was hardly any benefit arising out of it.

Appearing before a Bench led by Justice Ashok Bhushan, Solicitor-General Tushar Mehta, who had met Finance Ministry and RBI officials, explained that the moratorium during a pandemic lockdown could not be construed as a “waiver”. “What I am supposed to pay today, I have to pay tomorrow,” he said.

‘An irony’

“So you are saying you are actually doing a favour by deferring payment. It is an irony that thousands of crores have been defaulted on NPA [non-performing assets] accounts... You should be interested in helping them [borrowers], a pandemic is not a normal situation. No penalty should be charged here,” Justice S.K. Kaul, on the Bench, told Mr. Mehta.

A complete waiver of deferred loan interests would have a “serious cascading effect” on the financial interests of the depositors, the Solicitor-General replied.

The court has been consistently questioning the RBI and the government whether the deferment of loan interest would lead to charging of interest on interest once the freeze was lifted after August 31.

Senior advocate Harish Salve, for the Indian Banks’ Association, intervened and pointed out that the whole case was “premature”. “We are still in the tunnel. We do not know when we will come out of this tunnel. Today we don’t even know where and when this is going to end... European experts says it may be 2022. When we say no interest should be charged during this [moratorium] period, it will hit the banks hard. Today, nobody can say when they will get their revenue back... Some companies are running on 70%, revenue for the hospitality sector is zero, the airline sector is zero. So, let us see,” Mr. Salve submitted.

‘Wait till August’

He said the court should wait till August-end to assess liabilities after getting a clearer picture of the turn of events. Meanwhile, the moratorium would continue.

Senior advocate Mukul Rohatgi, for the State Bank of India, said depositors, including senior citizens, should not suffer owing to the moratorium.

Banks should be solvent to pay them compound interest on their deposits. “If you want deferment of your loan interest, you have to pay the price for deferment,” he said. Justice Kaul, speaking for Bench, said the court did not want any harm to depositors.

The court said its proceedings were focused on one question: whether the moratorium would eventually lead to payment of interest on interest deferred for six months.

“Will you be able to bear the burden if there is no interest on interest charged,” it asked the banks.

Mr. Salve responded that banks had their own schemes to provide benefits to such sectors as agriculture and business. They might also have to create new schemes.

He pleaded that the case be adjourned till August-end so that banks could collate details and place them on record.

“Let us wait for three months. Everybody will know by then what the priorities... We can’t have mass bankruptcy,” Mr. Salve submitted.

Legal framework

Senior advocate K.V. Vishwanathan, appearing for one of the parties, said there is a legal framework on the release and repayment of loans under the Disaster Management Act.

“Some restructuring of loans may be required, but we cannot lose three months. Somebody will have to start working now, or there will be a complete negation of whatever benefits the law allows citizens during such unprecedented times,” he said.

The cour posted the case for further hearing in the first week of August.

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