Interest waiver on loan moratorium: Apex court defers the matter to August

The Supreme Court on Wednesday deferred the plea to consider waiver of interest on interest for loan EMI (Equated Monthly Instalment) during six months moratorium period. However, it has asked the Centre and Reserve Bank of India to consider the matter.

A bench led by Justice Ashok Bhushan heard the plea seeking relief and then listed the matter for next hearing in August. It has sought clarity on whether banks can come up with new guidelines on this matter.

As a part of Covid-19 regulatory package, the RBI on March 27 announced deferment of instalments and interest/EMIs on Term Loans falling due from March 1 to May 31. Later, on May 23, the moratorium was extended for another three months falling due from June 1 to August 31. Accordingly, banks acted on that and offered moratorium but also cautioned that interest would continue to accrue on the outstanding portion of the term loan during the moratorium period.

Nation’s largest lender, State Bank of India posted details about of impact of deferment. If a borrower has taken a home loan of, for example, ₹6 lakhs and avail full six months of a moratorium, then with a remaining maturity of 54 months the additional interest payable would be ₹36,000 approximately equal to additional 3 EMIs. Similarly, for a home loan of ₹30 lakhs with a remaining maturity of 15 years the additional interest payable would be ₹4.54 lakhs approximately equal to an additional 16 EMIs.

Following the caution, a limited number of borrowers availed the moratorium. It was said that since total outstanding include principal and interest, further interest would mean interest on interest. Banks clearly said that EMI has been deferred and not interest and it will continue to accrue. Following this petition was filed in the Supreme Court to waive the interest for the moratorium period.

During the hearing, Solicitor General Tushar Mehta said that waiving interest completely will not be easy for banks as even they have to pay interest to depositors. Appearing for Indian Bank Association Senior Advocate Harish Salve termed the petition very premature. “We are still in the tunnel. According to European Bank estimates, the economy will rebound by 2022. We don't know when we rebound by September, October etc. No interest will put banks under a lot of strain,” he said. After all the arguments, the court ordered the matter to be listed during the first week of August.

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