On September 28, the Supreme Court will reconsider the plea seeking an exemption from charging interest on interest during the moratorium period. The court, which heard the case on September 10, had adjourned the hearing to September 28. In view of the special circumstances of the COVID period, the plea before the Supreme Court was to waive the penalty interest and the interest upon interest during the moratorium period. The Supreme Court is set to pronounce the judgment on the interest liability of many people in the country who have had to adopt the moratorium due to the economic downturn.
According to a circular issued by the Reserve Bank on March 27, 2020, the moratorium would be applicable for a period of three months from March 1 to May 31. It was later extended to a three-month period until August 31. The only advantage of a moratorium is that the loan will not be declared non-performing if the EMI is not repaid during this period. Banking rules allow interest to be charged on non-performing EMIs. As a result, those who adopt the moratorium will have to pay a large amount of extra interest. The need before the Supreme Court is to avoid imposing such additional interest on those who are experiencing financial hardship.
On September 10, the Supreme Court allowed the central government, which had not taken a clear stand on the issue, two weeks to decide on the moratorium interest. The Center is expected to state its position on the petition again on September 28.
Banks that take a stand against these petitions see this as a case in point that could determine how the banks’ lending business will proceed. In fact, banks contend that the Supreme Court’s consideration of such a petition is tantamount to questioning the fundamentals of the banking system and that it is up to the Reserve Bank to take a final stand on the matter. Proponents of the case have been working to make the actual transcript of this statement available online.
This argument would have seemed correct if it had been stated during another situation. If the basic structure of the credit business is questioned, the credit supply itself will be in crisis. At the same time, banks need to realise that the moratorium on loans across the country is during an extraordinary situation. Those who lost their jobs and saw their incomes plummeting when the COVID scare and lockdown hit the economy, adopted the moratorium as they could not pay the EMI. Banks should not be penalised for giving such temporary relief. It is an inhumane approach for banks to insist on levying fines and interest on interest. Banking experts, who talk endlessly about the basic structure of the credit business, need to keep in mind that during the Covid era, many resolutions would have to be relaxed and a liberal approach would have to be adopted.
Banks struggling to recover corporates’ debts argue that interest should be charged on top of the moratorium on interest rates allowed to the general public. Banks that are not hesitant to relax the terms and conditions when granting loans to corporates are later overwhelmed by the burden of bad credit. It is not appropriate for such banking institutions to adopt a different parameter when dealing with ordinary people in this country. Hopefully, the Supreme Court will intervene in this matter in a rational and humane manner.
