Banks can restructure loans, but can't penalise honest borrowers availing moratorium: SC told

New Delhi: The Supreme Court was on Wednesday told that although banks very much in their limits to restructure loans but they cannot penalise honest borrowers by charging interest on deferred EMI payments under the moratorium scheme in the wake of the COVID-19 pandemic.

On March 27 the had RBI permitted all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (referred to hereafter as “lending institutions”) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

In May, the RBI announced extension of loan moratorium by 3 more months to August 31.

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.

Petitioner Gajendra Sharma has sought a direction to declare portion of the RBI`s March 27 notification as ultra vires to the extent it charged interest on the loan amount during the moratorium period.

Senior counsel Rajiv Dutta, appearing for the petitioner Gajendra Sharma who has taken home loan from a bank, assailed the accrual of interests on EMIs even during the moratorium period.

The Centre and the RBI had Tuesday told the apex court that moratorium period on repayment of loans during the COVID-19 pandemic is extendable by two years and several steps have been taken to help the stressed sectors.

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.

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.

RBI however come 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.

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.

With PTI Inputs