The Centre on Thursday (November 19) told the Supreme Court that it is still mulling whether to impose interest-on-interest on borrowers for deferring their EMI’s due to the COVID-19 pandemic, and that the banking sector cannot bear any further strain that may be caused by more interest waivers on loans.
The court was hearing a batch of petitions on the charging of compound interest by banks on loan moratorium period between March and August 31, granted by the RBI amid the COVID-19 pandemic.
Earlier the RBI had granted an interest waiver on loans up to ₹2 crore for small borrowers.
While disposing pleas where some petitioners thanked the court for the compound interest waiver, a bench of justices Ashok Bhusan, R Subhash Reddy and MR Shah directed the Centre and the RBI to respond to suggestions from the power sector.
The court posted the hearing to next week.
Solicitor General Tushar Mehta, representing the Centre, told the Supreme Court that it was the responsibility of banks to credit compound interest waiver for loans up to 2 crores and that it was not for consumers to remind the banks of this scheme.
He said even if the petitioners insist that there was a better option, sector specific plan is not possible under Article 32.
“These are fiscal affairs. The Centre has its own mechanisms to address the concerns raised by the petitioners. If the Supreme Court is satisfied, on action taken, on measures deployed, Supreme Court should not intervene any further,” he said.
The Solicitor General also apprised the court on measures taken by government taken by the Centre and the RBI including complete elasticity to banks, resolution plans, and allowing them to grant a moratorium period once the resolution plan is approved.
He also told the Centre that those who paid EMIs during the moratorium period cannot be punished.
“Whether they have availed moratorium, or not availed, or partly availed – all are eligible,” he said.
In a major relief for small borrowers, the RBI in October had asked banks to credit the difference in compound interest and simple interest on repayments of eligible loans up to ₹2 crore due between March and August, by November 5.
The relief will help sectors including housing, education, auto sectors as well as MSMEs.
The apex court earlier had granted the Centre and the RBI time to file affidavits detailing the steps to be taken for the enforcement of the recommendations made on the waiver of compound interest for small borrowers.