Interest Waiver During Loan Moratorium Will Affect Banks' Stability, RBI Tells Supreme Court

There cannot be an interest waiver during moratorium on term loan repayment as such a move will put the financial health and stability of banks at risk, RBI told Supreme Court.

Interest Waiver During Loan Moratorium Will Affect Banks' Stability, RBI Tells Supreme Court

"The interestcharged by the banks would form an important source of income," RBI said.

There cannot be an interest waiver during moratorium on term loan repayment as such a move will put the financial health and stability of banks at risk, the Reserve Bank of India (RBI) told the Supreme Court on Wednesday. It is not "prudent or appropriate to go for a forced waiver of interest, risking the financial viability of the banks in its mandate to regulate, and putting the interests of depositors in jeopardy," RBI said in its petition to the top court.

The RBI had announced a six-month moratorium to borrowers on payment of installments, in effect, extending the EMI payments till August, in an attempt to ease the financial stress arising from Covid-19 lockdown. "The regulatory package is, in its essence, in the nature of moratorium or deferment and cannot be construed to be a waver," RBI pointed out.

The top court had earlier sought the central bank's response to a public interest litigation (PIL) on whether interest should be charged on moratorium that may be availed by borrowers on loan repayment. The petitioner Gajendra Sharma had moved the top court and argued that levying interest would result in increased EMIs accruing at a later stage and therefore, interest should not be charged for the moratorium period.

"The objective behind the RBI's move (moratorium) was to mitigate the burden of debt servicing on account of the disruption caused due to the COVID-19 pandemic and the consequent lockdown. The same was done keeping in mind the necessity to ensure continuity of viable businesses," the central bank stressed in its affidavit to the court.

"In this light," the affidavit said, "banks are expected to run viable commercial considerations and are in fact guardians of the depositors' monies. The actions of the banks need to be guided by the interests of the depositors."

"The interest charged by the banks would form an important source of income," RBI said, emphasising the need to charge interest on loan outstanding.

The top court will take up the issue today i.e. Thursday