SC rules out the extension of the moratorium, waives interest on interest

MUMBAI: The Supreme Court on Tuesday refused to interfere with the government and Reserve Bank of India (RBI) decision on the loan default plan, refusing to extend the six-month moratorium period. The higher court also said that additional reparations, such as the full exemption of interest, cannot be allowed as it affects depositors.

The Supreme Court delivered its verdict on a series of pleas from various business associations, including those in the real estate and energy sectors, seeking an extension of the loan moratorium and other reliefs in light of the coronavirus pandemic.

Read also | Six wrong decisions about the post-covid economy

A court chaired by Judge Ashok Bhushan had reserved its verdict on December 17.

The superior court added that no interest on interest will be charged to borrowers during the moratorium period, regardless of the loan amount. Any amount charged will be refunded.

The Center had previously filed with the high court that if it considered waiving interest on all loans and advances to all categories of borrowers during the six-month moratorium period announced by the RBI in light of the pandemic, then the amount waived would be more than 6 trillion rupees.

If banks were to bear this burden, it would necessarily wipe out a substantial and major portion of their net worth, rendering most lenders unviable and raising serious doubts about their survival, he had said.

The government had said that this was the main reason why an interest exemption was not even contemplated and only the payment of installments was deferred.

It remains to be seen who will bear the burden of the waived interest on the interest.

On March 27, 2020, the RBI had announced a loan default plan, which allowed lenders to grant temporary relief to borrowers for the payment of installments on term loans that are due between March 1, 2020 and on May 31, 2020, due to the pandemic and the consequent Recession of economic activities.

Subsequently, the moratorium was extended until August 31. The move was aimed at giving borrowers more time to pay EMIs amid the economic fallout due to the national lockdown caused by the pandemic, without being classified as a bad loan.

Gross NPLs (NPA) of Indian banks stood at Rs 7.4 trillion, while net NPA stood at Rs 1.7 trillion at the end of December due to the SC freeze on bad loans. . The gross delinquency rate could have risen to Rs8.7 trillion or 8.3% of loans and the net delinquency rate to Rs2.7 trillion or 2.7% of advances in the absence of the status quo.

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