Waiver of Interest Charged during Moratorium: SC asks Centre, RBI to Hold Meet in Three Days

The Supreme Court on Friday asked the Finance Ministry and the Reserve Bank of India to hold a meeting within three days to decide on waiver of interest on interest for deferred payments of instalments for loans during the moratorium period announced in wake of the coronavirus-induced lockdown.

The court was hearing a plea filed by an Agra resident on the issue.

A bench of Justices Ashok Bhushan, S K Kaul and M R Shah said the question is not of waiver of complete interest for entire moratorium period but it is limited only to interest charged on interest by banks.

It posted the matter for further hearing next week.

During the hearing, the bench said that it is trying to take a balanced view of the matter, and only wants that wider measures should be adopted.

Solicitor General Tushar Mehta, appearing for the Centre, said that he had sought a meeting with the RBI.

The bench said that if the RBI reply "goes much beyond the query posed by us there will be a lot of opinions on it".

"Our query is very limited on whether there can be waiver of interest on interest," it said.

It asked the Centre to file an affidavit after holding the meeting with the RBI on the decision taken.

The bench was hearing a plea filed by Gajendra Sharma, in which he has sought a direction to declare the portion of the RBI's March 27 notification "as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which create hardship to the petitioner being borrower and creates hindrance and obstruction in 'right to life' guaranteed by Article 21 of the Constitution of India".

Sharma has also sought a direction to the government and the Reserve Bank of India (RBI) to provide relief in repayment of loan by not charging interest during the moratorium period.

On June 4, the top court had sought the Finance Ministry's reply on waiver of interest on loans during the moratorium period after the RBI said it would not be prudent to go for a "forced waiver of interest" risking financial viability of the banks.

The top court had said there are two aspects under consideration in this matter - no interest payment on loans during the moratorium period and no interest to be charged on interest.

It had said that these are challenging times and it is a serious issue as on the one hand, moratorium is granted and on other hand, interest is charged on loans.

On May 26, the top court had asked the Centre and the RBI to respond to the plea challenging levy of interest on loans during the moratorium period.

The RBI in its reply has told the top court that it is taking all possible measures to provide relief with regard to debt repayments on account of the fallout of COVID-19 but it does not consider it prudent 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."

In its reply, to the plea the RBI said that regulatory package is, in its essence, in the nature of a moratorium/deferment and "cannot be construed to be a waiver."

"While the Reserve Bank is taking all possible measures to provide relief to the real sector with regard to debt repayments on account of the fallout of COVID-19, it does not consider it prudent or appropriate to go for a forced waiver of interest, risking the financial viability of banks it is mandated to regulate, and putting the interests of the depositors in jeopardy," the Reserve Bank had said in its affidavit.

It had said the mandate of the Reserve Bank as far as regulation of banks is concerned draws upon the considerations of protection of depositors' interest and maintenance of financial stability, which also require that the banks remain financially sound and profitable.

The RBI had said that the March 27 circular announcing moratorium was later modified on April 17 and May 23 by which the moratorium period was extended by another three months that is from June 1 to August 31, 2020 on payment of all installments in respect of term loans (including agricultural term loans, retail and crop loans).

"It is submitted that regulatory dispensations permitted by the Reserve Bank of India vide the aforesaid circulars dated March 27, 2020 which subsequently stood modified on April 17, 2020 and May 23, 2020 were with the objective of mitigating the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses. Therefore, the regulatory package is, in its essence, in the nature of a moratorium/deferment and cannot be construed to be a waiver," it had said.

The RBI had said that in order to ameliorate difficulties faced by borrowers in repaying accumulated interest for the moratorium period, on May 23 it had announced that in respect of working capital facilities, lending institutions may, at their discretion, convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.