Supreme Court to Centre, RBI: Banks free to restructure loans, can't penalise borrowers

New Delhi: Banks are free to restructure loans but they cannot penalise honest borrowers by charging interest on deferred EMI payments under the moratorium scheme during the COVID-19 pandemic, a petitioner opposing the move said in the Supreme Court on Wednesday.

A bench headed by Justice Ashok Bhushan, which commenced final hearing on a batch of pleas raising the issue of interest on instalments deferred under the scheme during the moratorium period, was told that paying interest on interest is a “double whammy” for borrowers.

Senior counsel Rajiv 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.

The Centre and the RBI had Tuesday told the apex court that moratorium period on repayment of loans during the COVID-19 pandemic is “extendable” by two years and several steps have been taken to help the stressed sectors.

Solicitor General Tushar Mehta, appearing for the Centre and RBI, had said that the economy contracted by 23 per cent in the April-June quarter due to coronavirus-related lockdown and restrictions.

The Centre also 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.

RBI however come out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers, the central government had informed the apex court.

The Ministry of Finance had filed an affidavit before the court which had asked the Centre and the RBI to review the move to charge interest on EMIs and interest on the interest during the moratorium period introduced under the scheme due to the COVID-19 pandemic.