The Central Govt is considering modalities of relief to borrowers & will decide within 2 weeks on banks charging compound interest during the 6-month moratorium period which ended on Aug 31, solicitor general Tushar Mehta told the Apex Court on Thursday as he sought to avert a likely stay on interest on interest on loan instalments deferred during this period.
Arguing before a bench of Justice Ashok Bhushan, Justice R S Reddy & Justice M R Shah, Senior Lawyers Kapil Sibal, C A Sundaram and Rajiv Dutta raised the pitch on what they said were insurmountable difficulties faced by borrowers — individual, industrial & corporates — in repaying loans during the lockdown when the economy shrank dramatically owing to loss of production & earnings.
They said, on one hand, the Govt was terming the pandemic as a ‘force majeure’ situation to allow deferment of payment of loans, but on the other hand banks were charging interest on interest & seeking to downgrade credit rating & asset classification because of non-payment of instalments towards debt servicing.
The bench continued till Sept 28 its earlier interim order directing banks not to declare any loan as a non-performing asset due to non-payment of instalments, if it was not so declared till Aug 31, when the moratorium period ended.
Before allowing the Govt 2 weeks to chart out clear responses to the issues raised by the petitioners, including charging interest on interest & the downgrading of credit rating & asset classification, the bench said it was inclined to pass an interim order directing banks not to debit interest on interest for loans during the moratorium period.
However, Mehta strived hard & succeeded in dissuading the court against passing any interim order without considering its grave repercussions on the economy & health of the banking sector. He said the government, at the highest levels, was alive to the difficulties faced by borrowers & industrial sectors & was engaged in finding a mechanism to extend benefits to them in consultation with the Reserve Bank of India (RBI) & commercial banks. RBI lawyer V Giri too stepped in to dissuade the Court from passing any interim order.
Senior Lawyer Harish Salve, for the Indian Banks’ Association, said no interim order should be passed at this stage without considering banks’ stand. If an interim order stopping interest on interest was passed, it would play havoc with the accounting system of banks, he added.
Appearing for the largest commercial bank, State Bank of India, senior advocate Mukul Rohatgi argued that the Court couldn't look into the plight of borrowers alone.
He asked that “There are millions of depositors. Will the court also say that banks do not have an obligation to pay interest on interest on their deposits?”
The bench said, “All decisions taken by the government of India, Reserve Bank of India or different banks should be placed before the court for consideration. Specific instructions with regard to charging of compound interest & credit rating/downgrading during moratorium period shall be obtained, so that appropriate order be issued on the next date of hearing.” It posted the matter for further hearing on Sept 28.
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