The Supreme Court of India has said that it cannot extend the loan moratorium period offered by the Reserve Bank of India (RBI) last year. The RBI offered a moratorium period on loan instalments from March 1 to August 31.
The SC bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah issued the verdict after taking up a batch of petitions challenging the central government and the RBI’s decision to charge interest on interest during the moratorium period and restricting interest waiver to certain borrowers who availed loans of less than Rs 2 crore.
The Apex Court observed that a complete waiver of interest during the moratorium period could not be granted as banks have to pay interest to account holders and pensioners. The Court said, “We are of the opinion that there shall be no interest on interest, compound interest or penal interest during the moratorium period.”
The court added that any amount recovered under the above-mentioned heads shall be refunded by adjusting it in the next instalment of the loan amount.
The top court has reportedly rejected borrowers’ pleas of total waiver of interest during the moratorium period, RBI-provided sector-wise relief, an extension of moratorium period, an extension for invocation and resolution mechanism and other reliefs.
The Court also informed that it will not interfere and exercise judicial review over economic and fiscal policies just because one section is not happy with the policies. “The Court will not embark upon inquiry whether public policy is wise or better policy can be evolved. Economic and fiscal policies are not amenable to judicial review and merely because a sector is not satisfied with a policy decision, cannot be the reason for interference unless there are malafides and arbitrariness in the said policy decision,” the SC ruling read.
What is the loan moratorium scheme?
When the Covid-19 pandemic hit Indian shores resulting in a nationwide lockdown, the RBI announced a loan moratorium scheme on March 27, 2020. This scheme allows lending institutions such as banks to grant temporary relief to borrowers on payment of term loan instalments due between March 1, 2020, and May 31, 2020. The RBI aimed to provide borrowers more time to pay their EMIs amid the Covid-19 pandemic and resulting economic crisis. The loan relief was meant for personal, housing, education, auto and consumer durables loans, loans to micro, small and medium enterprises (MSME), besides loans to micro, small and medium enterprises (MSME). The loan period was extended from May to August 31, 2020.
However, companies, business associations and individuals approached the SC after interests and compound interest were being charged during the moratorium period. Reportedly, the Centre did not agree with the interest waiver during the period. The Centre pointed out that interest waiver is not practical as banks would face the burden with an estimated amount of Rs 6 lakh crore. However, the Centre said that asserted that the compound interest on loans up to Rs 2 crore will be waived for six categories of borrowers. Borrowers falling outside the six categories attacked the Centre over this move.