Loan moratorium case: SC defers consideration of waiver of interest on EMI till Aug 1st week

New Delhi, June 17: The Supreme Court on Wednesday adjourned hearing on plea that sought waiver of interest on EMIs during the six week moratorium period. The matter will be heard in the first week of August.

The All India Bank Depositors' Association (AIBDA) has said Interest rate waivers for bank loans during moratorium will harm the depositors, adding that interest waiver of any kind will dent the credit culture and also impact the financial health of banks.

Bank depositors will be "severely hit" if a waiver on interest rates is allowed, as banks would inevitably seek to cover their potential or actual loss of interest income through further cutbacks in the deposit interest rates, it said.

It further added that historically, the sovereign covered the loan interest waivers, but in the current situation, a shortfall in revenues both at the Centre and state level will not permit the same.

Meanwhile, on June 12, the Supreme Court had asked the Centre and the Reserve Bank of India (RBI) to hold a meeting within three days to decide on waiver of interest on interest for deferred payments of instalments for loans during the moratorium period announced in wake of the coronavirus-induced lockdown.

The AIBDA said media reports on the Supreme Court observations have been "extremely unnerving" and added that the same prompted it to make the depositors' stance known. The Reserve Bank of India (RBI) had on June 4 said lenders will lose Rs 2 lakh crore if interest is waived during the moratorium period.

"Our query was limited to whether there will be a levy of interest on deferred interest. If RBI travels beyond the query posed there will be many opinions," the SC said on June 12.

The government will consult RBI in the next three days, to formalise a view. The government added that it will convene a meeting of stakeholders to discuss the subject.

The State Bank of India (SBI) intervened in the hearing, arguing that interest waiver is not feasible.

The RBI had said that the March 27 circular announcing moratorium was later modified on April 17 and May 23 by which the moratorium period was extended by another three months that is from June 1 to August 31, 2020, on payment of all installments in respect of term loans (including agricultural term loans, retail and crop loans).

It is submitted that regulatory dispensations permitted by the Reserve Bank of India vide the aforesaid circulars dated March 27, 2020 which subsequently stood modified on April 17, 2020 and May 23, 2020 were with the objective of mitigating the burden of debt servicing brought about by disruptions on account of 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/deferment and cannot be construed to be a waiver, it had said.

The RBI had said that in order to ameliorate difficulties faced by borrowers in repaying accumulated interest for the moratorium period, on May 23 it had announced that in respect of working capital facilities, lending institutions may, at their discretion, convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021.