SC pronounces verdict on loan moratorium: cannot allow total exemption of interest


oi-Roshni Agarwal


The CS today (March 23, 2021) issued its decision on a series of pleas from various trade associations including the energy and real estate sectors, seeking the extension of the loan moratorium and other relief amid the pandemic. The bank led by Judge Ashok Bhushan said they cannot accept any more exemptions, including the full interest exemption.

SC pronounces verdict on loan moratorium: cannot allow total exemption of interest

SC pronounces verdict on loan moratorium: cannot allow total exemption of interest

Here are the latest advances in the matter:

• The superior court said they cannot allow additional compensation, such as a further extension of the loan default or a full waiver of interest. “Granting such relief will have far-reaching consequences for the economy,” he added.

• Regarding interest over interest, the SC said that the center has made a political decision to assign interest over interest. Furthermore, he said that the government has not provided any justification for limiting the interest exemption on interest only on loans up to Rs. 2 crore. “Interest on interest is in the nature of criminal interest. Charging criminal interest during the lockdown period has not been justified. The amount recovered will be reimbursed in the form of interest on interest,” the court added.

• Regarding the loan moratorium, the superior court said interest exemption is not possible

• Previously, the government made it clear to the superior court that if it allowed the waiver of interest on all loans and advances to all categories of borrowers during the six-month moratorium period from March to August 2020, the amount total waived will be to the tune of Rs. 6 million lakh rupees. And if this burden were absorbed by banks, they would significantly erode their net worth, rendering most of them unviable, he said. This is the reason why only the payment of installments was deferred and this question of interest exemption was not even considered.

• On November 27 last year, the high court asked the Center to ensure that all steps are taken to implement its decision to waive interest on the eight listed categories of loans up to Rs. 2 crore.

In view of the pandemic, on March 27 of last year, the RBI asked lenders to grant a moratorium on the payment in installments of term loans that mature between March 1 and May 31, then the relief was extended until August 31, 2020.

With PTI inputs

Article first published: Tuesday, March 23, 2021, 12:29 p.m. [IST]

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