Published On: Wed, Sep 2nd, 2020

Borrowers assail in Supreme Court charging of interest on EMIs during moratorium period

New Delhi, Sep 2 (PTI) Borrowers and various bodies representing different sectors on Wednesday assailed before the Supreme Court the charging of “penal” interest on deferred EMI payments by banks under the moratorium scheme during the COVID-19 pandemic.

Indian middle class is waiting for interest relief on deferred EMI payments under the moratorium scheme during the COVID-19 pandemic.

The apex court, which commenced final hearing on a batch of pleas on the issue, had earlier asked the Centre and the Reserve Bank of India (RBI) to review the move to charge interest on EMIs during the moratorium period.

The Centre and the RBI have told the top court that waiver of interest on deferred EMIs during the moratorium period would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule.

They said the RBI has already come out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers and it can be decided by the bank concern after taking into the account the situation of the borrower.

At the outset of final hearing before a bench headed by Justice Ashok Bhushan, senior advocate Rajeev Dutta, appearing for a borrower of the home loan, said the banks are free to restructure loans but they cannot penalise honest borrowers by charging interest on deferred EMI payments under the moratorium scheme.

He told the bench, also comprising Justices R S Reddy and M R Shah, that levying interest on interest is a “double whammy” for borrowers who availed the benefits of the scheme.

Dutta, appearing for the petitioner Gajendra Sharma who has taken home loan from a bank, assailed the accrual of interests on EMIs even during the moratorium period.

“RBI came out with the scheme and we thought that we will be paying the EMI after the moratorium period and later we were told that compound interest would be charged and it will be double whammy for us as we will be paying interest on interest,” Dutta told the bench.

“They have given so much relief to banks and we are not given any relief in actual terms”, he said, adding that “there is no default on my (petitioner) part and we cannot be penalized for availing a scheme by being charged the interest on interest”.

Dutta claimed that Reserve Bank of India (RBI) is a regulator and “not an agent of banks” and borrowers are being penalised during the COVID-19 times.

“Now the government is saying that they will restructure the loans. You restructure but don”t penalise the honest borrowers,” he said.

Senior advocate C A Sundaram, appearing for Confederation of Real Estate Developers’ Associations of India (CREDAI), told the bench that moratorium should be extended for at least six months.

“If interest can”t be waived, then please reduce it to a level on which banks pay their depositors,” he said.

Sundaram referred to the August 6 circular of RBI which gave power to banks to decide on moratorium to industries.

During the hearing, Solicitor General Tushar Mehta said the Centre and the RBI were not in an “adversarial litigation” with the petitioners and will assist the court in finding a solution.

“There were some options available for reviving the economy. One was to write off interest. Second was a more holistic option in which the first step would be to ease the burden of repayment of loans,” he said.

He said the priority has been the revival of sectors so that economy gets moving, restructuring of stressed assets and then the operations of banking sectors.

“We have a variety of banks dealing with a variety of loans and borrowers and then we have a variety of borrowers also. Individual borrowers can also be categorised in different kinds,” the law office said.

Borrowers are not a homogeneous class, he said, adding that RBI”s circular has empowered banks take note of the difficulties faced by different kind of stressed borrowers.

Sundaram said charging of penal interest, may lead to increase in NPAs and as per the latest circular of the RBI, banks have been given the power to decide whether it will grant moratorium or not to an industry or a borrower.

Another senior lawyer K V Vishwanathan referred to statutory schemes and said that the new circular is an “attempt to hoodwink ” the borrowers.

“The recommendations to be made must be meaningful recommendations and Your Lordships may direct them to discharge their duty under the Disaster Management Act, ” he said.

He also referred the RBI Act and said that provided that the Central Government can give directions to RBI from time to time in public interest.

“This isn”t a normal situation, it”s an unprecedented pandemic. Power Producers are amongst the most stressed sectors,” he said, adding that the banks need to forego profit only for this year.

Earlier, the Centre and the RBI had said the that the moratorium period on repayment of loans amid the COVID-19 pandemic is “extendable” by two years and several steps have been taken for the stressed sectors.

They had said that the economy has contracted by 23 percent in the last quarter due to coronavirus-related lockdown and restrictions.


Disclaimer :- This story has not been edited by The Sen Times staff and is auto-generated from news agency feeds. Source: PTI


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