NEW DELHI: The Centre is considering modalities of relief to borrowers and will decide within two weeks on banks charging compound interest during the six-month moratorium period which ended on August 31, solicitor general Tushar Mehta told the Supreme Court on Thursday as he sought to avert a likely stay on interest on interest on loan instalments deferred during this period.
Arguing before a bench of Justices Ashok Bhushan, R S Reddy and M R Shah, senior advocates Kapil Sibal, C A Sundaram and Rajiv Dutta raised the pitch on what they said were insurmountable difficulties faced by borrowers — individual, industrial and corporates — in repaying loans during the lockdown when the economy shrank dramatically owing to loss of production and earnings.
They said on one hand the government was terming the pandemic as a ‘force majeure’ situation to allow deferment of payment of loans, but on the other hand banks were charging interest on interest and seeking to downgrade credit rating and asset classification because of non-payment of instalments towards debt servicing.
The bench continued till September 28 its earlier interim order directing banks not to declare any loan as non-performing asset due to non-payment of instalments, if it was not so declared till August 31, when the moratorium period ended.
Before allowing the government two weeks to chart out clear responses to the issues raised by the petitioners, including charging interest on interest and the downgrading of credit rating and asset classification, the bench said it was inclined to pass an interim order directing banks not to debit interest on interest for loans during the moratorium period.
However, Mehta strived hard and succeeded in dissuading the court against passing any interim order without considering its grave repercussions on the economy and health of the banking sector. He said the government, at the highest levels, was alive to the difficulties faced by borrowers and industrial sectors and was engaged in finding a mechanism to extend benefits to them in consultation with the Reserve Bank of India (RBI) and commercial banks. RBI counsel V Giri too stepped in to dissuade the court from passing any interim order.
Senior advocate Harish Salve, for the Indian Banks’ Association, said no interim order should be passed at this stage without considering banks’ stand. If an interim order stopping interest on interest was passed, it would play havoc with the accounting system of banks, he added.
Appearing for the largest commercial bank, State Bank of India, senior advocate Mukul Rohatgi argued that the court could not look into the plight of borrowers alone. “There are millions of depositors. Will the court also say that banks do not have an obligation to pay interest on interest on their deposits?” he asked.
The bench said, “All decisions taken by the government of India, Reserve Bank of India or different banks should be placed before the court for consideration. Specific instructions with regard to charging of compound interest and credit rating/downgrading during moratorium period shall be obtained, so that appropriate order be issued on the next date of hearing.” It posted the matter for further hearing on September 28.
Arguing before a bench of Justices Ashok Bhushan, R S Reddy and M R Shah, senior advocates Kapil Sibal, C A Sundaram and Rajiv Dutta raised the pitch on what they said were insurmountable difficulties faced by borrowers — individual, industrial and corporates — in repaying loans during the lockdown when the economy shrank dramatically owing to loss of production and earnings.
They said on one hand the government was terming the pandemic as a ‘force majeure’ situation to allow deferment of payment of loans, but on the other hand banks were charging interest on interest and seeking to downgrade credit rating and asset classification because of non-payment of instalments towards debt servicing.
The bench continued till September 28 its earlier interim order directing banks not to declare any loan as non-performing asset due to non-payment of instalments, if it was not so declared till August 31, when the moratorium period ended.
Before allowing the government two weeks to chart out clear responses to the issues raised by the petitioners, including charging interest on interest and the downgrading of credit rating and asset classification, the bench said it was inclined to pass an interim order directing banks not to debit interest on interest for loans during the moratorium period.
However, Mehta strived hard and succeeded in dissuading the court against passing any interim order without considering its grave repercussions on the economy and health of the banking sector. He said the government, at the highest levels, was alive to the difficulties faced by borrowers and industrial sectors and was engaged in finding a mechanism to extend benefits to them in consultation with the Reserve Bank of India (RBI) and commercial banks. RBI counsel V Giri too stepped in to dissuade the court from passing any interim order.
Senior advocate Harish Salve, for the Indian Banks’ Association, said no interim order should be passed at this stage without considering banks’ stand. If an interim order stopping interest on interest was passed, it would play havoc with the accounting system of banks, he added.
Appearing for the largest commercial bank, State Bank of India, senior advocate Mukul Rohatgi argued that the court could not look into the plight of borrowers alone. “There are millions of depositors. Will the court also say that banks do not have an obligation to pay interest on interest on their deposits?” he asked.
The bench said, “All decisions taken by the government of India, Reserve Bank of India or different banks should be placed before the court for consideration. Specific instructions with regard to charging of compound interest and credit rating/downgrading during moratorium period shall be obtained, so that appropriate order be issued on the next date of hearing.” It posted the matter for further hearing on September 28.
