A Supreme Court bench, on Thursday, observed that the charging of interests by banks during the six-month moratorium period on term loans was ‘detrimental’, and sought a response from the Finance Ministry and the Reserve Bank of India.
This comes a day after the RBI submitted to the apex court that a waiver of interest on loans will impact the financial viability of the country’s financial sector and that the banks could forego about Rs 2 trillion in interest income if interests are waived off for the six months duration of the moratorium.
The three judge bench, comprising justices Ashok Bhushan, Sanjay Kishan Kaul, and MR Shah, set the next hearing in the matter for June 12, and asked Solicitor General Tushar Mehta to file Finance Ministry and RBI’s response by then.
The record of the proceedings stated: “Mr Tushar Mehta, learned Solicitor General submits that although counter affidavit has been filed on behalf of the Reserve Bank of India yet he shall obtain necessary instructions from the Finance Ministry as well as the higher officials of the Reserve Bank of India, for which he prays for a week’s time,”
In its observations, the bench said that there were two aspects under consideration in this matter — no interest payment on loans during the moratorium period and no interest to be charged on interest.
The bench said that these are challenging times and it is a serious issue as on one hand moratorium is granted and on other hand interest is charged on loans. Accrual of interest while allowing moratorium is “detrimental”, remarked Justice Shah. The bench also said the economic interests were not more important than the health of people.
The bench was hearing a plea challenging levy of interest on loans during the moratorium period. The plea, filed by Agra resident Gajendra Sharma, has sought a direction to declare the portion of RBI’s March 27 notification as something beyond the RBI’s legal power or authority, to the extent that it charges interest on the loan amount during the moratorium period, which creates hardship to the petitioner being borrower and creates hindrance and obstruction in ‘right to life’ guaranteed by Article 21 of the Constitution of India”.
Senior advocate Rajeev Dutta, appearing for petitioner Gajendra Sharma, said that RBI’s affidavit on Wednesday showed that it considered profitability of the banks more important profit while rest of the country goes down during the pandemic. He referred to the recent order of the apex court in the Air India matter on booking of middle seats on the non-scheduled flights to bring the stranded Indians from abroad.
Solicitor General Mehta said he would consult the Finance Ministry and try to find out a solution to both the questions asked by the bench and file a response to them.
The bench also took umbrage to the coverage of RBI’s reply in the media. “Is RBI filing the reply first in media and then in court?” remarked Justice Bhushan. Dutta said this was a move to sensationalise the issue. The bench said that it highly deprecates this practice and this should not be repeated.
In its affidavit, the RBI had said that the moratorium on loans, which was recently extended to August 31, is in the nature of a deferment and cannot be construed to be a waiver. Giving an illustrative example RBI also said that banks could forego about Rs 2 trillion in interest income if interests are waived off for the six months duration of the moratorium.
“While the Reserve Bank is taking all possible measures to provide relief to the real sector with regard to debt repayments on account of the fallout of Covid-19, it does not consider it prudent or appropriate 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,” the central bank had said.
On May 23, Governor Shaktikanta Das extended the moratorium by another three months from June 1, for all term loans, including agricultural term loans, retail and crop loans. The moratorium was originally announced on March 27 for three months starting April 1.