Interest On Interest On Loan EMI Top Court Asks Centre If Banks Can Charge Interest On Deferred EMI

Supreme Court Pulls Up Centre Over Interest Waiver On Deferred Loan Repayments

The Supreme Court on Wednesday pulled up the central government over the issue of interest waiver on loan EMIs deferred due to the coronavirus-induced lockdown. The top court directed the government and the Reserve Bank of India to review the matter, saying the issue cannot be left between borrowers and lenders. “If the Centre announced a moratorium, it must ensure the benefits are given to customers purposefully,” said the Supreme Court bench, comprising Justices Ashok Bhushan, Sanjay Kishan Kaul and MR Shah.

The top court said the customers have not availed of the moratorium knowing that they will not get any benefit out of it. The government took time to find a way out but “nothing has happened”, the bench said.

“The Centre and the RBI will review the matter… Indian Banks’ Association to see if new guidelines can be brought in force for moratorium issue,” said the Supreme Court, which will next hear the case in the first week of August.

Representing the central government, Solicitor General Tushar Mehta told the Supreme Court that the plea for waiver of interest during the moratorium period would risk the financial stability of the banks.

“Plea for waiver of interest during the moratorium period would risk the financial stability of the banks and shall put the interests of the depositors in jeopardy. Even banks have to pay interest to depositors… therefore waiving interest is not easy,” Mr Mehta said.

Banks told the Supreme Court they will have to consider payment deferrals on a case-to-case and sector-to-sector bases.

The top court had last week asked the Finance Ministry and the central bank to meet and decide on a waiver of interest on deferred loan repayments during the moratorium period.

The bench was hearing a plea filed by Gajendra Sharma of Agra, seeking a direction to declare the portion of the RBI’s March 27 notification “as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which creates hardship to the petitioner being borrower and creates hindrance and obstruction in ‘right to life’ guaranteed by Article 21 of the Constitution of India”.

In March, the RBI had allowed lenders to offer their customers a moratorium on loans – allowing borrowers to defer their EMIs – for three months to tide over the financial fallout from the coronavirus pandemic.

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