Supreme Court Allows Waiver Of Compounding Interest On Loans, Refuses Moratorium Extension

The top court said they cannot do a judicial review of the Centre’s financial policy decisions unless they are malafide and arbitrary in its decision on a batch of petitions seeking an extension of the loan moratorium period and other reliefs.

Supreme Court of India | File Image

Supreme Court on Tuesday allowed the waiver of interest-on-interest or the compound interest for all borrowers during the six-month loan moratorium period but declined to extend the six-month loan moratorium term offered by the Reserve Bank of India (RBI) last year, citing it a ‘policy decision’ of the Centre and RBI.

“It is directed that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium and any amount already recovered under the same head, namely, interest on interest/penal interest/compound interest shall be refunded to the concerned borrowers and to be given credit/adjusted in the next instalment of the loan account,” read the order by a three-judge apex court bench.

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The bench led by Justice Ashok Bhushan said the top court cannot do a judicial review of the Centre’s financial policy decisions unless they are malafide and arbitrary in its decision on a batch of petitions seeking an extension of the loan moratorium period and other reliefs.

The Supreme Court dismissed the petitions seeking a total waiver of interest during the moratorium period, extending the period of the moratorium, and extending the period for invocation of the resolution mechanism 31.12.2020 provided under the 6.8.2020 circular.

The apex court also didn’t provide any relief to petition seeking sector­wise reliefs by the RBI, and that the Central Government/RBI must provide for some further reliefs over and above the relief packages already offered.

The RBI declared a three-month moratorium on loan payments due between March 1 and May 31. On March 27, it was later extended by three months until August 31, 2020.

Personal loans, housing loans, education loans, auto loans, consumer durables loans and loans to micro, small and medium enterprises (MSME) and credit card dues were eligible for the loan relief, which was subject to certain conditions.

The Supreme Court also lifted the standstill on NPA classification. The apex court said the interim relief granted earlier not to declare the accounts of respective borrowers as NPA now stands vacated.

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According to ICRA estimates on a proforma basis, the banks' gross NPAs stood at Rs 8.7 lakh crore or 8.3 per cent of the advances as against the reported gross NPAs of Rs 7.4 lakh crore (7.1 per cent).

Similarly, the banks' proforma net NPAs stood at Rs 2.7 lakh crore or 2.7 per cent of the advances against the reported NPAs of Rs 1.7 lakh crore (1.7 per cent).

“The financial vacuum created by Covid-19 pandemic compelled the Indian Government to extend relaxations to both lenders and borrowers. However, with no end in sight, alternative methods for attaining economic equilibrium were considered in the past one year. The biggest temporary relief accorded to the borrowers was the non-declaration of NPAs by banks and NBFCs,” Sonam Chandwani, Managing Partner at KS Legal & Associates, told ABP News.

“The recent Supreme Court judgement disallowing additional relieves such as total waiver of interest indicates a stringent stance and outlook of the Bench. This move was especially important as the pandemic has rendered numerous lenders unviable thereby raising serious questions over their survival,” Chandwani a