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NEW DELHI: The Center is considering relief modalities for borrowers and will decide within two weeks whether banks will charge compound interest during the six-month moratorium period that ended on August 31, Attorney General Tushar Mehta told the Supreme Court while seeking to avoid a possible suspension of interests in loan installments deferred during this period.
Arguing before a bench of judges Ashok Bhushan, RS Reddy and MR Shah, lead attorneys Kapil sibal, CA Sundaram and Rajiv dutiesta they raised what they said were insurmountable difficulties that borrowers – individual, industrial and corporate – faced in repaying loans during the lockdown when the economy contracted sharply due to lost output and profits.
They said that, on the one hand, the government was calling the pandemic as a ‘force majeure’ situation to allow deferral of loan payments, but on the other hand banks were charging interest on interest and seeking to lower the credit rating and asset classification due to non-payment of fees for servicing Debt.
The bank continued until September 28 its previous provisional order ordering banks not to declare any loans as unproductive asset due to non-payment of fees, if it was not declared until August 31, when the moratorium period ended.
Before allowing the government two weeks to map out clear responses to the issues raised by the petitioners, including charging interest on interest and downgrading the credit rating and asset classification, the bank said it was inclined to approve an order provisional ordering banks not to debit. interest on interest on loans during the moratorium period.
However, Mehta tried hard and managed to dissuade the court from passing an interim order without considering its serious repercussions on the economy and the health of the banking sector. He said that the government, at the highest levels, was aware of the difficulties faced by borrowers and industrial sectors and was committed to finding a mechanism to extend the benefits to them in consultation with the Reserve Bank of India (RBI) and the commercial banks. RBI lawyer V Giri also intervened to dissuade the court from passing any interim order.
Senior Counsel Harish Salve from the Banking Association of India said that an interim order should not be approved at this stage without considering the banks’ position. If an interim order suspending interest on interest is passed, it would wreak havoc on banks’ accounting systems, he added.
Appearing for the largest commercial bank, State Bank of India, lead counsel Mukul Rohatgi argued that the court could not examine the plight of the borrowers on its own. “There are millions of depositors. Will the court also say that banks are not required to pay interest on the interest on their deposits? ” I ask.
The court said: “All decisions made by the Government of India, the Reserve Bank of India or different banks should be brought before the court for consideration. Specific instructions regarding the charging of compound interest and credit rating / downgrade will be obtained during the moratorium period so that the corresponding order is issued at the next hearing date. ”He published the matter for an additional hearing on September 28.
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