Supreme Court to decide on moratorium interest waiver issue today

The Centre and the Reserve Bank of India (RBI) informed the Supreme Court on Tuesday that the moratorium on repayment of loans must be extendable to two years under certain conditions. And, the sectors most distressed by the economic slowdown are being identified.

“We are in the process of identifying the distressed sectors as per impact of the hit they have taken,” Solicitor General Tushar Mehta told the three-judge Bench, headed by Justice Ashok Bhushan.

The apex court said it would hear the matter again and decide on Wednesday a bunch of petitions demanding waiver of interest, or waiver of interest on interest on the suspended monthly instalments during the moratorium period.

The Bench was hearing a plea challenging levy of interest on loans during the moratorium period. 

The plea, filed by Agra resident Gajendra Sharma, sought a direction to declare the portion of the RBI’s March 27 notification as something beyond the bank’s legal power or authority. That is, to the extent that interest on the loan amount charged during the moratorium period creates hardship to the petitioner being the borrower. It creates hindrance and obstruction in ‘right to life’ guaranteed by Article 21 of the Constitution.

The Supreme Court had observed in June that 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 had also observed that the charging of interests by banks during the six-month moratorium period on term loans was ‘detrimental’.

The RBI, on its part, had submitted that a waiver of interest on loans will impact the financial viability of the country’s financial sector. It also said banks could forgo about Rs 2 trillion in interest income if interests are waived for the six months duration of the moratorium.

On Tuesday, the Solicitor General suggested a meeting of representatives of the finance ministry with the RBI and banks to find a solution. 

He also sought more time on behalf of the Centre and requested the Bench to examine the affidavit submitted by the government. The Bench, however, said the final hearing will be on Wednesday.

The RBI’s circular on personal loan restructuring says that the resolution plans may include rescheduling of payments or granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. 

“Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan,” it said.