Banks are free to restructure loans but they cannot penalise honest borrowers by charging interest on deferred EMI payments under the moratorium scheme during the COVID-19 pandemic, a petitioner opposing the move said in the Supreme Court on Wednesday. Lawyers arguing in favour of a public interest litigation filed by Gajender Sharma and lawyer Vishal Tiwari asking for waiver of interest on interest on deferred loans during moratorium in Supreme Court argued that, “public at large going through hell of a time.” The lawyers questioned that if the Insolvency and Bankruptcy Code (IBC) could be suspended to give relief to the industry, what about the borrowers?
Here are 10 things to know about the loan moratorium case:
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A bench headed by Justice Ashok Bhushan, which commenced final hearing on a batch of pleas raising the issue of interest on instalments deferred under the scheme during the moratorium period, was told that paying interest on interest is a “double whammy” for borrowers.
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“Instead of giving respite the banks are encashing on this,” the lawyers argued in the top court. Questioning the Reserve Bank of India’s position on the case, lawyers argued that the RBI did not wake up from crores of rupees looted from the nation and said that RBI is a statutory regulator, not “an agent of the banks”.
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Senior advocate C A Sundaram representing the body of real estate developers in the case, industry body CREDAI, said that it is unfair to charge interest and this may lead to increase in non-performing assets for banks. The industry body argued that even if the interest cannot be waived of, at least it should be reduced to the level on which banks pay depositors.
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Mr Sundaram told the bench that moratorium should be extended for at least six months.
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Association of Power Producers told Supreme Court that the power producers are among the most stressed sectors and asked banks to forego profit for this year as real estate and many other sectors were fully shut during the lockdown.
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The government on Tuesday told the Supreme Court that the moratorium on repayment of loans allowed during the coronavirus crisis can be extended by two years. This came a day after the government’s deadline for temporary relief on loan repayments ended.
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Solicitor General Tushar Mehta, appearing for the Centre and RBI, had said that the economy contracted by 23 per cent in the April-June quarter due to coronavirus-related lockdown and restrictions.
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The Centre also told the top court that waiver of interest on deferred EMIs during the moratorium period would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule.
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RBI however came out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers, the central government had informed the apex court.
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The Ministry of Finance had filed an affidavit before the court which had asked the Centre and the RBI to review the move to charge interest on EMIs and interest on the interest during the moratorium period introduced under the scheme due to the COVID-19 pandemic.
