SC Pronounces Verdict On Loan Moratorium: Cant Allow Total Interest Waiver

The SC today (March 23, 2021) pronounced its decision on a host of pleas by several trade associations that include power and real estate sectors, seeking extension of loan moratorium and other relief amid the pandemic. The bench led by Justice Ashok Bhushan said they can't agree to further reliefs including total waiver of interest.

Here are the latest developments in the matter:

• The apex court said they can't allow additional relief such as further extension of loan moratorium or total waiver of interest. "Granting such relief will have reaching consequences for the economy," it added.

• On interest on interest, the SC said the centre has taken policy decision to relinquish interest on interest. Further it said that the government has not provided for any rationale for limiting waiver of interest on interest only on loans up to Rs. 2 crore. "Interest on Interest is in the nature of penal interest. No justification has been given to charge penal interest during the lockdown period. Amount recovered in the form of interest on interest will be refunded," the court added.

• In the matter of loan moratorium, the apex court said waiver of interest is not possible

• Earlier, the government has made it clear before the apex court that it if were to permit waiving interest on all loans and advances to all borrower category for the six month moratorium period spanning March-August 2020, the total amount foregone will be to the tune of Rs. 6 lakh crore. And if this burden was to be absorbed by banks then they would significantly erode their net worth, rendering most of them unviable, it said. This is the reason why only payment of installments was deferred and this waiver of interest issue was not even contemplated.

• Last year on November 27, the apex court asked the Centre to ensure that all measures be taken for implementing its decision to forego interest on eight listed categories of loans up to Rs. 2 crore.

In view of the pandemic, last year on March 27, the RBI asked lending institutions to grant a moratorium on loan installment payment of term loans due between March 1 and May 31, later the relief was extended until August 31, 2020.

With PTI Inputs