NEW DELHI: The Reserve Bank of India told the Supreme Court that it cannot waive interest on loans for the moratorium period, as it would affect the financial stability of the banking sector. In an affidavit filed in the top court, it estimated the interest payable on these loans to be Rs 2.01 lakh crore, or equivalent to 1% of India’s gross domestic product.
The RBI has announced a sixmonth moratorium on loans repayments from March, giving borrowers the option to postpone EMIs till August, to ease the financial stress on them due to Covid-19 and the lockdown.
On Wednesday, the banking regulator told the court that the moratorium was only a deferral and not a waiver on payments. It only defers collection of loans and interest till a further point of time, which is not later than March 31, 2021, it said.
The central bank filed the affidavit in response to a court notice on a petition seeking interest waiver during the moratorium period. Since customer profiles differ, the manner or recovery of interest has been left to the discretion of the lending institutions, the RBI said.
While the RBI is making efforts to provide relief to all sectors, it doesn’t consider it prudent or appropriate to offer a forced waiver of interest, the affidavit said. Such a decision would put the financial viability of banks at risk and depositors interest in jeopardy, the banking regulator added.
The RBI said the moratorium would help reduce the immediate burden of borrowers and also take care of the effective income of banks which are commercial entities and need to sustain themselves to remain being the guardian of depositors.
“…the benefit and intention of moratorium is not to waive any payment obligation to the borrowers; the benefit was to provide for a brief interlude in payment pressures,” the affidavit said. The objective, it said, was that businesses during the lockdown must not be subjected to a double whammy. Interest must accrue to the lending institution during this period and not land the institution in insolvency as it would further impede the banking sector’s ability to help other sectors in recovering from the blow of the pandemic, the RBI said.