Loan moratorium case: Waiver of complete interest not possible, says SC

The Supreme Court today refused to interfere with the government and the Reserve Bank of India's (RBI) loan moratorium policy and declined to extend the six months loan moratorium period. The apex court said that the waiver of complete interest is not possible as it affects depositors.

Banking stocks rallied after the Supreme Court verdict was out. SBI, IndusInd Bank, ICICI Bank, Axis Bank and HDFC Bank were up between 2% and 2.5%.

The apex court refused to interfere with the Centre's and RBI’s decision to not extend the loan moratorium beyond August 31 last year, saying it is a policy decision.

A bench headed by Justice Ashok Bhushan said the top court cannot do a judicial review of the Centre’s financial policy decision unless it is malafide and arbitrary.

The apex court said it cannot interfere with the government’s decision to fix priorities for relief during the pandemic which has affected all across the country.

The bench said this in its verdict on a batch of pleas filed by various trade associations, including from real estate and power sectors, seeking an extension of the loan moratorium period and other reliefs in view of the pandemic.

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A bench headed by Justice Ashok Bhushan had reserved its verdict on the batch of pleas on 17 December last year.

The Centre had earlier submitted before the top court that if it were to consider waiving interest on all the loans and advances to all categories of borrowers for the six-month moratorium period announced by RBI in view of the COVID-19 pandemic, then the amount foregone would be more than ₹6 lakh crore.

If the banks were to bear this burden, then it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the lenders unviable and raising a very serious question mark over their very survival, it had said.

The government said this was the main reason why a waiver of interest was not even contemplated and only payment of instalments was deferred.

Giving an illustration, it had said that in the case of State Bank of India alone (which is the largest bank in the country), waiver of six months' interest would completely wipe out over half of the bank's net worth which has accumulated over nearly 65 years of its existence.

It had pointed out the sector-specific relief measures taken by the government for the small and mid-sized business/MSMEs including from sectors such as restaurants and hotels.

The Centre has promulgated an emergency credit-linked guarantee scheme (ECLGS) of ₹3 lakh crore providing additional credit at a lower rate of interest, with a 100 per cent government guarantee and no fresh collateral, it had said.

The scheme has been extended with higher financial limits to twenty-seven COVID-19 impacted sectors including restaurant and hotel sectors, it had said.

On November 27 last year, the top court had asked the Centre to ensure that all steps be taken to implement its decision to forego interest on eight specified categories of loans paid up to ₹2 crore in view of the coronavirus pandemic.

The apex court had noted that the moratorium period as granted by the Reserve Bank of India continued from March 3 to August 31, six months.

The RBI had on March 27 issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic. Later, the moratorium was extended till August 31 this year.