The Central Govt is considering
modalities of relief to borrowers & will decide within 2 weeks on banks
charging compound interest during the 6-month moratorium period which ended on
Aug 31, solicitor general Tushar Mehta told the Apex Court on Thursday as he
sought to avert a likely stay on interest on interest on loan
instalments deferred during this period.
Arguing before a bench of
Justice Ashok Bhushan, Justice R S Reddy & Justice M R Shah, Senior
Lawyers Kapil Sibal, C A Sundaram and Rajiv Dutta raised the
pitch on what they said were insurmountable difficulties faced by borrowers —
individual, industrial & corporates — in repaying loans during the lockdown
when the economy shrank dramatically owing to loss of production &
earnings.
They said, on one hand, the Govt
was terming the pandemic as a ‘force majeure’ situation to allow
deferment of payment of loans, but on the other hand banks were charging
interest on interest & seeking to downgrade credit rating & asset
classification because of non-payment of instalments towards debt servicing.
The bench continued till Sept 28
its earlier interim order directing banks not to declare any loan as a
non-performing asset due to non-payment of instalments, if it was not so
declared till Aug 31, when the moratorium period ended.
Before allowing the Govt 2 weeks to chart out clear responses to the issues raised by the petitioners, including charging interest on interest & the downgrading of credit rating & asset classification, the bench said it was inclined to pass an interim order directing banks not to debit interest on interest for loans during the moratorium period.
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However, Mehta strived hard &
succeeded in dissuading the court against passing any interim order without
considering its grave repercussions on the economy & health of the banking
sector. He said the government, at the highest levels, was alive to the
difficulties faced by borrowers & industrial sectors & was engaged in
finding a mechanism to extend benefits to them in consultation with the Reserve
Bank of India (RBI) & commercial banks. RBI lawyer V Giri too stepped in to
dissuade the Court from passing any interim order.
Senior Lawyer Harish Salve, for the
Indian Banks’ Association, said no interim order should be passed at this stage
without considering banks’ stand. If an interim order stopping interest on interest
was passed, it would play havoc with the accounting system of banks, he added.
Appearing for the largest commercial bank, State Bank of India, senior advocate Mukul Rohatgi argued that the Court couldn't look into the plight of borrowers alone.
He asked that “There are millions
of depositors. Will the court also say that banks do not have an obligation to
pay interest on interest on their deposits?”
The bench said, “All decisions
taken by the government of India, Reserve Bank of India or different banks
should be placed before the court for consideration. Specific instructions with
regard to charging of compound interest & credit rating/downgrading during
moratorium period shall be obtained, so that appropriate order be issued on the
next date of hearing.” It posted the matter for further hearing on Sept
28.
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