The Center informed the Supreme Court on Tuesday that if it considered waiving interest on all loans and advances to all categories of borrowers during the six-month moratorium period announced by the RBI in light of COVID-19
pandemic, then the amount lost would be more than Rs 6 lakh crore. If banks were to bear this burden, it would necessarily wipe out a substantial and major portion of their net worth, rendering most lenders unviable and raising a very serious question mark about their own survival, he said. A bench of Justices Ashok Bhushan, RS Reddy and MR Shah was informed by Attorney General Tushar Mehta, who appeared before the Center, that this was one of the main reasons why the interest exemption was not even contemplated and only deferred payment of fees. The high court is hearing a series of submissions from various bodies, including real estate and energy, seeking wise relief from the sector in light of the COVID-19 pandemic.
Reading the written submission filed in the superior court, Mehta said that if the interest on all loans and advances is waived during the moratorium period, with respect to all classes and categories of borrowers, the amount to be waived would be more than Rs 6 crore lakh. It is argued that if the Government considered the possibility of waiving the interest on all loans and advances to all classes and categories of borrowers corresponding to the six-month period for which the moratorium (deferral of payment of the installment) was established in Under the relevant RBI circular, the estimated amount is more than Rs 6 lakh crore, he said. Giving an example, he said that just in the case of the State Bank of India (which is the largest bank in the country), the six-month interest exemption would completely wipe out more than half of the bank’s net worth, which has accumulated for almost 65 years. of its existence. Ongoing payment of interest (including interest on interest) to depositors is not only one of the most essential banking activities, but it is also a huge responsibility that can never be compromised as most depositors are destined for be small depositors, pensioners, etc. interest on their deposits said in their written submissions. Referring to the affidavit filed by the Banking Association of India on September 25, he said that the State Bank of India has stated that the amount of interest on borrowers during the six-month moratorium is Rs 88,078 crore. (approximately) while the interest payable to depositors during the said period turns out to be Rs 75,157 crore (approximately).
Mehta said that in the Indian banking system for each loan account there are around 8.5 deposit accounts and highlighted the various financial relief already granted by the central government. He said that going further may be detrimental to the overall economic scenario, the nation’s economy or the banking sector may not be able to cope with the resulting financial constraints. Mehta also noted the sector-specific support measures taken by the Center for small and medium-sized enterprises / MSMEs, including those in sectors such as restaurants and hotels. He said the Center has enacted an Emergency Credit Linked Guarantee Scheme (ECLGS) of Rs 3 lakh crore that provides additional credit at a lower interest rate, with a 100% government guarantee and no new guarantees. The scheme has been expanded with higher financial limits to twenty-seven COVID-19 sectors affected, including the restaurant and hotel sectors, it added. He said that although it may not be possible to give the exact percentage of the borrowers who have not taken advantage of the moratorium and have deposited the installments on time; roughly that class would be more than 50 percent.
Mehta said that by granting relief to small distressed borrowers, the Center decided that relief from the compound interest waiver during the six-month moratorium period will be limited to the most vulnerable category of borrowers who availed loans of up to Rs 2 crore. He said that the RBI in its circular dated August 6 classified the large borrowers (who had a loan account of Rs 1,500 crore or more) and the rest as not large borrowers.
Mehta added that customizing reliefs for individual borrowers can never be done by either the Finance Ministry or the RBI, as it involves millions of borrowers and therefore can only be done by the respective lenders. He said that when it comes to large borrowers, the RBI appointed an expert committee under the chairmanship of KV Kamath that segregated various borrowers in the sector into 26 categories and provided parameters within which banks were ordered to restructure accounts. He added that different ministers are taking various measures under the Disaster Management Law, against the erroneous notion of requests that the functions of all ministers should be carried out by the National Disaster Management Authority (NDMA). In other words, as far as the economic impact of the present disaster is concerned, it is essentially the role of the Ministry of Finance and the RBI to take action under Section 36 of the Act and the question of NDMA intervention would not arise, its submission written said.
Tomorrow the one-day hearing would continue via videoconference.
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