Home » News » Can’t Allow Extension of Loan Moratorium Period, Waiver of Interest Not Possible – SC

On Tuesday, the Supreme Court refused to interfere with the government and the Reserve Bank of India’s (RBI) loan moratorium policy and declined to extend the six months loan moratorium period. The apex court further held that the waiver of complete interest is not possible as it affects depositors.

The bench comprising of Justices Ashok Bhushan, R Subhash Reddy, and MR Shah said “We have considered reliefs independently. Waiver of complete interest is not possible as banks have to pay interest to account holders and pensioners.”

“There shall be no interest on interest or compensation interest during the moratorium period, irrespective of the loan amount. If any such amount has been collected it shall be refunded,” added Justice MR Shah.

The above observations were made while hearing a batch of pleas that were moved in the last year seeking a waiver from interest on interest in respect of EMIs which were not paid by the borrowers after availing the loan moratorium scheme.

Earlier, the six-month loan moratorium scheme was extended by the Reserve Bank of India (RBI) in the wake of the COVID-19 pandemic.

On 27 March 2020, the Reserve Bank of India had issued a circular which allowed lending institutions to grant a moratorium on payment of installments of term loans falling between 1 March 2020 and 31 May 2020, due to the pandemic. Later, the period of the moratorium was extended till August 31 last year.

The Central Bank had also allowed lenders to undertake a one-time loan restructuring without classifying them as non-performing assets (NPAs) to ease the financial stress in COVID times.

The Supreme Court had ruled in September 2020 that loans not classified as NPAs till 31 August 2020, shall not be put under this category till further orders. The Centre had then waived the compound interest charged on certain categories of loans up to Rs 2 crore.

Several trade associations and badly affected sectors, including power and real estate, had moved the Supreme Court demanding an extension and other reliefs.

In its representation before the apex court, the Centre had submitted that if it were to waive interest on all the loans and advances to all categories of borrowers for the six-month moratorium period, then the amount foregone would exceed Rs 6 lakh crore.

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