On Wednesday, the Supreme Court asked the central government to implement the interest exemption scheme as soon as possible while listening to a series of petitions seeking an interest exemption during the loan moratorium. On October 3, the central government said that ‘interest on interest’ on loans of up to ₹2 crore for six months until the end of August. “Banks will waive interest on interest and then they will be compensated by the government and the calculation will have different modalities. We will have to make sure that the bank gives us a proper format,” Attorney General Tushar Mehta told the higher court.
The three-judge bench comprised of Justices Ashok Bhushan, R Subhash Reddy and MR Shah said Wednesday that the government should not delay implementation any further. “November 15 is the outer limit for implementation, but the government will try to implement it even before that,” Mehta added.
The RBI had announced in March a moratorium on repayment of time deposits for three months, which was then extended until August 31. The move was intended to provide relief to borrowers during the COVID-19 pandemic and was expected to give them more time to settle EMI payments amid the economic fallout of the lockdown, without being classified as non-performing assets (NPA).
On September 3, the superior court approved an interim order holding that accounts not declared as NPA as of August 31 will not be declared as NPA until new orders are entered. In March, the Reserve Bank of India had allowed a three-month moratorium on term IMEs and other loans maturing between March 1 and May 31. The moratorium was subsequently extended until August 31.
On October 10, the Reserve Bank of India informed the Supreme Court that if the suspension on the classification of the NPA account is not lifted immediately, it will have huge implications for the banking system, in addition to undermining the regulatory mandate of the RBI.
The Reserve Bank of India (RBI) recently filed an affidavit in high court saying that a loan moratorium in excess of six months could result in “vitiating overall credit discipline”, which will have a “debilitating impact” in the process of credit creation economy.
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