The Supreme Court on Thursday asked for the finance ministry’s response to the loan interest waiver during the moratorium period after the RBI said it would not be prudent to opt for a risky “forced interest waiver” the financial viability of banks.
The highest court said there were two aspects under consideration in this case: no payment of interest on the loans during the moratorium period and no interest to be charged on the interest.
A bench of Judges Ashok Bhushan, Sanjay Kishan Kaul and MR Shah said times are tough and it is a serious problem because on the one hand a moratorium is granted and on the other hand interest is charged on loans.
The court heard a plea, filed by Gajendra Sharma, in which he requested a direction to declare the part of RBI’s March 27 notification “as ultra vires to the extent that it charges interest on the loan amount during the moratorium period, which creates difficulties. to the applicant being a borrower and creates a hindrance and obstruction of the “right to life” guaranteed by article 21 of the Constitution of India ”.
Sharma, a resident of Agra, also called on the government and the Reserve Bank of India (RBI) to provide loan repayment relief by not charging interest during the moratorium period.
Solicitor General Tushar Mehta, representing the Center, said he would like to table the Finance Ministry’s response on the matter and asked for time.
Senior lawyer Rajeev Dutta, representing petitioner Gajendra Sharma, said now the cat is out of the bag as RBI says bank profitability is paramount.
He referred to the recent Supreme Court order in the Air India case regarding the reservation of intermediate seats on non-scheduled flights to bring stranded Indians from abroad. The court had declared that the economic interest is not superior to the health of the people.
Dutta said that by the RBI’s submission, it means only banks are expected to make a profit while the rest of the country collapses during the pandemic. He stated that the Applicant wished to file a reply to the response filed by the RBI.
Mehta said he would consult with the Finance Ministry and try to find a solution to the questions posed by the judiciary and file a response to them.
The Supreme Court asked the solicitor general to file the response by June 12 and allowed the petitioner and the other parties to file a reply by then.
From the outset, the highest court took note of the fact that RBI’s response had been disclosed to the media before the case was brought to court. “Does RBI file the response first in the media, then in court?” Dutta said it was a move to sensationalize the issue. The bench said they strongly advise against the practice and that it should not happen again.
On May 26, the highest court asked the Center and the RBI to respond to the plea challenging the charging of interest on loans during the moratorium period. In its response, the RBI told the highest court it was taking all possible steps to ease debt repayments due to the Covid-19 fallout, but it does not deem it prudent to opt for a “forced waiver. to interest “. , endangering the financial viability of the banks it is responsible for regulating and endangering the interests of depositors ”. In its response to the plea, the RBI said the regulatory package is, in essence, in the nature of a moratorium / postponement and “cannot be interpreted as a waiver.”
“While the Reserve Bank is taking all possible measures to relieve the real sector of debt repayments due to the fallout from Covid-19, it does not consider it prudent or appropriate to opt for a forced waiver of interest, risking the financial viability of the banks it is responsible for regulating, and putting the interests of depositors at risk, ”the Reserve Bank said in its affidavit.
He said the Reserve Bank’s mandate in regulating banks is based on considerations of protecting the interests of depositors and maintaining financial stability, which also require banks to remain financially sound and profitable. .
The RBI said the March 27 circular announcing a moratorium was then amended on April 17 and May 23 by which the moratorium period was extended for another three months, from June 1 to August 31, 2020, upon payment by all. term payments (including agricultural term loans, retail loans and crop loans).
“It is submitted that the regulatory exemptions authorized by the Reserve Bank of India void the aforementioned circulars of March 27, 2020, which were subsequently amended on April 17, 2020 and May 23, 2020, were intended to alleviate the burden on the service of debt brought. by disruptions due to the Covid-19 pandemic and to ensure the continuity of viable businesses.
“Therefore, the regulatory package is, in its essence, in the nature of a moratorium / postponement and cannot be interpreted as a waiver,” he said.
The RBI said that in order to alleviate the difficulties faced by borrowers in repaying interest accrued during the moratorium period, it announced on May 23 that with regard to working capital facilities, credit institutions may , at their discretion, convert the interest accrued in the deferral period until August 31, 2020, into a Capitalized Interest Term Loan (FITL) that will be repayable no later than March 31, 2021.