Coronavirus Crisis: Top Court Asks RBI, Centre To Discuss Interest On Deferred Loan Repayments

The Supreme Court on Friday asked Finance Ministry and Reserve Bank of India to hold a meeting within three days to decide on waiver of interest on deferred payments of instalments for loans during the moratorium period announced in wake of the coronavirus-induced lockdown. "If interest payment has been deferred for three months, banks should not add that amount to the payable money and charge interest on interest," Supreme Court bench comprising of Justices Ashok Bhushan, Sanjay Kishan Kaul and M R Shah said.

The bench said 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.

"We are doing balancing. The only thing we are wanting is a wider measure. Our concern in these proceedings is only whether the interest that has been deferred for 3 months will be added to charges payable later and whether there will be interest on the interest," the bench added.

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.

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".

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 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".

Next hearing on the matter will be held on Wednesday, June 17.

(With inputs from PTI)