The RBI’s announcement on March 29 has become a bone of contention for many, with some filing petitions in the Apex Court. The RBI had announced an extension in the period of moratorium – a provision for all borrowers to be exempted from paying any monthly installment – until August 31, 2020. However, this relief comes at a cost; interest charged on interest.
Clash of the Titans
The Bench consisted of Justices Ashok Bhushan, Sanjay Kaul and MR Shah. Whereas, the banks were represented by the renowned advocates, Mr. Harish Salve and Mr. Mukul Rohtagi. On the other hand, the petitioner was represented by Senior Advocate Rajiv Dutta.
The Solicitor General on behalf of the Government and RBI: Moratorium effectively means “deferment”.
Justice Bhushan: Then the deferred amount should stay as it is while it is under moratorium.
Justice Kaul: What you are saying is that you are doing them a favor by deferment for three months?
Harish Salve: According to authoritative estimates, the world will see a meltdown by 2022. Not charging interest during this period will put the entire banking sector under a lot of distress.
Rajiv Dutta: But there’s already a pandemic going on!
Mr. Harish Salve asserted that simply doing away with interest during this time is not a viable thing to do.
Justice Kaul: We are aware of all these concerns. We are talking only about interest on interest. For these three months you have deferred, but you have not done away with interest on interest.
Mukul Rohatgi: The benefit of deferment has to come with a cost. It cannot be availed and not come at a cost.
Justice Shah tells the Solicitor General that the Central Government has to step up and take a stand: You can’t have a notification saying so and then step out of it. You took the time to answer this. What you are saying was said by RBI.
Harish Salve: Can I make a suggestion? Let’s wait for three months and see where this is going.
Rajiv Dutta: I am obliged to your lordship for understanding the problem that petitioners are suffering. We bare in an unprecedented situation. In the midst of a pandemic. They are over-complicating everything.
Rajive Dutta: Today the RBI wants to make money out of banks? In this serious situation? What about those people who have taken huge sums of money from banks and fled the country? How were they excused?
The bench held that. “The issues in pleas are that Interest should not be charged during moratorium and at least interest on interest should not be charged. Let the petition be listed again by 1st week of August and the Centre and RBI will review the issue.”
This means that both sides are right and the situation has reached an impasse. Now a mediator must tackle the situation. However, the RBI and the Central Government after announcing this notification have slipped into the shadows and are refusing to comment. Instead, they have shifted the responsibility on to the banks. As a matter of fact, the Court decided to take up the matter in August.
But, by then it would be too late. The banks are already refusing to finance the economy during this stale period. If there is only outflow of money, the financial sector in the next three months would be strained. Furthermore, after the moratorium period is over on August 31, with the current situation there is high chances of deferment of loan repayment. Moreover, if the interest amount accumulated becomes high, the banks can kiss goodbye to the green stuff.
Now, is this a discussion held before the moratorium was released? No, but how we wish it was.