The government will present its plan today to help borrowers ease their EMI burden during the coronavirus crisis as the top court will hear final arguments in the loan moratorium case. Earlier this month, the Supreme Court had given the government two more weeks “to come up with something concrete” in the case related to an optional moratorium on repayment of loans allowed by the RBI in view of COVID-19-related restrictions. The top court is hearing a batch of petitions seeking a waiver of interest on deferred EMIs during the moratorium introduced by the RBI to offset the financial hit taken by borrowers during the coronavirus-induced lockdown.
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In its September 10 order, the top court had given the last chance to the government and the RBI to come up with a plan, refusing to adjourn the case any further.
“What is going to happen in two weeks?… We are giving time to the centre, but take a concrete decision,” the judges had said as the government sought more time. On that day, the Supreme Court extended an interim order restricting lenders from declaring any accounts as non-performing assets – or bad loans – till further orders.
The earlier order on standard accounts of borrowers opting for the moratorium will continue, Justices Ashok Bhushan, R Subhash Reddy and MR Shah had said virtually. The borrowers need to be protected and banks should not take any coercive action against them, the top court had held.
The top court had also instructed the government to include specific details, such as the compound interest to be charged and any impact on the credit rating for taking the moratorium, in its plan for borrowers, stating that the plan must be presented in the September 28 hearing.
The centre has set up an expert panel, under former Comptroller and Auditor General (CAG) Rajiv Mehrishi, to look into the issue of interest being charged by banks on instalments deferred during the moratorium period due to COVID-19 pandemic. The government has said that talks are being held at the highest level with banks and other stakeholders, and any concerns are being examined.
The interest on deferred EMIs is also referred to as “interest on interest” in the case, which has a number of associations representing sectors such as banks and real estate developers as parties.
The lawyers appearing for petitioners have expressed their concern with regard to individual loans, apart from other sectors, stating that individuals are more adversely affected during the pandemic. They argue that banks are debiting interest as well as interest on interest from accounts of creditors and credit rating is also being downgraded, which may have adverse effect with regard to various account holders.
While the petitioners have demanded a waiver of interest on interest (interest for exercising the option to suspend EMIs due to COVID-19), the government and the RBI are of the view that writing off interest will weaken banks and affect economic conditions.
The centre and the RBI say that a waiver of interest on deferred EMIs would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule.
The RBI had in March issued a circular that allowed banks and other financial institutions to grant a moratorium on payment of loan instalments due between March 1, 2020 and May 31 to ease the financial pressure on borrowers. That period was later extended to August 31.