Loan moratorium: No compound, penal interest to be charged from borrowers during loan moratorium period, says SC

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New Delhi: The Supreme Court on Tuesday refused to interfere with decision of Centre, RBI to not extend loan moratorium period beyond Aug 31, 2020, saying it is policy decision.

No compound, penal interest be charged from borrowers during loan moratorium period, amount already charged shall be credited or adjusted, the SC said.

The apex court also added that it cannot do judicial review of Centre's financial policy decision unless it is malafide, arbitrary. 

The top court is hearing a batch of pleas of various bodies including from real estate and power seeking sector wise relief in view of the COVID-19 pandemic.

What was loan moratorium all about?

The RBI had on March 27 issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1, 2020, and May 31, 2020, due to the pandemic. Later, the moratorium was extended till August 31 this year. The pleas pertained to charging of interest on interest by banks on EMIs which have not been paid by borrowers after availing the loan moratorium scheme of RBI during March 1 to August 31.

PIL filed over interest on interest issue

A PIL was later filed in the SC seeking directions to declare the notification dated March 27, 2020 issued by Reserve Bank of India as ultra vires to the extent it charges interest on the loan amount during the moratorium period. After several rounds of hearing, Centre informed the SC that lenders have been directed to credit in the accounts of eligible borrowers the difference between compound interest and simple interest collected on loans of up to Rs 2 crore during the RBI's loan moratorium scheme.

While the Supreme Court has directed the government make sure that all steps be taken to implement its decision to forego interest on eight specified categories of loans paid upto Rs two crore in view of the coronavirus pandemic, the Centre maintains that if it were to consider waiving interest on all the loans and advances to all categories of borrowers, then the amount foregone would be more than Rs 6 lakh crore.