Loan moratorium scheme: Centre ‘hiding behind RBI’ without making its stand clear, says Supreme Court


The court wanted to know whether the deferment of loan interest would lead to accrual of further interest once the freeze was lifted on August 31.

The Supreme Court on Wednesday criticised the Centre for “hiding behind the Reserve Bank of India” without making its stand clear on the loan moratorium scheme introduced during the COVID-19 pandemic.

The court wanted to know whether the deferment of loan interest to prop up borrowers through their financial crisis during the national lockdown would lead to accrual of further interest once the freeze was lifted on August 31. The government is yet to file its affidavit.

Noting that the issue had been pending indecisively for some months now, the court advised the government against adopting a blinkered vision, focussing only on matters of business of banks and not looking to the plight of people financially dented by the “problems created by your lockdown”. The court said the government was empowered to take an independent stand under the Disaster Management Act.

“The problem was created by your lockdown… It appears Union of India is not taking an independent stance and is relying on the Reserve Bank of India (RBI)… This is not the time to look after business only, consider providing relief,” a Bench led by Justice Ashok Bhushan addressed Solicitor General Tushar Mehta.

‘Govt. working in tandem with RBI’

Mr. Mehta said the government was working in tandem with the Central banker and it was unfair to say it did not have an independent view. The court gave the Centre time till September 1 to file a detailed affidavit, laying bare its stand.

The court had been trying to strike a balance between the interests of the banks and the borrowers.

“We are trying to balance. Whether there can be a system worked out… Our concern in these proceedings is only whether the interest that has been deferred will be added to charges payable later and whether there will be interest on the interest,” the Bench has maintained.

The debate was sparked by the RBI’s response in court that it would be imprudent to go for a forced waiver of interest, risking the financial viability of the banks it was mandated to regulate and putting the interests of the depositors in jeopardy.

The court is hearing a petition filed by Gajendra Sharma challenging the charging of interest rate on loans even during the three-month moratorium period declared amid the COVID-19 pandemic and national lockdown.

The Central banker, in its affidavit, had said its regulatory package introduced amid the pandemic lockdown was “in its essence in the nature of a moratorium deferment and cannot be construed to be a waiver”.

“Banks are commercial entities that intermediate between depositors and borrowers. They are expected to run on viable commercial considerations,” the affidavit had said.

It had reasoned that banks were custodians of the depositors’ money.

Central to the challenge in the petition was the RBI notification of March 27.

“The interest charged during moratorium period would be added up into the EMIs at the end of three-month forbearance. It will have to be paid in one go or be equally divided in all future EMIs. The monthly bill for customers will increase… In the present scenario, when all the means of livelihood has been curtailed by the government of India by imposition of lockdown and the petitioner has no way to earn a livelihood, the imposition of interest will defeat the very purpose of permitting moratorium on loans,” the petition has contended.

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