Centre to SC: Waiver of interest on interest during moratorium against basic canons of finance
New Delhi, September 1, 2020
The Finance Ministry in an affidavit has informed the Supreme Court that a waiver of interest on interest during moratorium would go against the basic canons of finance, and the August 6 RBI circular permitted lenders to allow a moratorium of up to two years.
The Ministry in the affidavit said: "The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years."
It added that the moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
The ministry said with the August 6 RBI circulars, banks were fully empowered to resolve COVID-related stress and customise relief to individual borrowers through grant of various concessions in terms of: "(i) alteration in the rate of interest and haircut on amount payable as interest; (ii) extension of the residual tenor of the loan, with or without moratorium, by up to two years; (iii) waiving penal interest and charges; (iv) rescheduling repayment; (v) converting accumulated interest into a fresh loan with a deferred payment schedule; and (vi) sanction of additional loan."
The Ministry said the RBI circulars take care of the MSME sector, personal loans and corporate loans, keeping in mind the overall financial stability of the economy, economic stability of the banking sector and interest of the depositors in mind.
"It is respectfully submitted that considering the fact that the time limit for continuance of the present economic issues is uncertain, as a policy it is undesirable to give any 'one-size fit all' solutions," said the affidavit.
The ministry insisted that in any banking sector when financial assistance is rendered by way of loans, a balance has to be maintained with the interest of crores of depositors, most of whom are merely depositors and surviving on the interest they receive on their deposits.
"On an approximate basis, there are over 197 crore deposit accounts in the country in commercial banks alone, in which depositors have deposited their money and are earning interest," added the ministry.
Elaborating on the extendable moratorium, the ministry said this extended moratorium becomes part of an individualised solution for a borrower and is made available along with other interventions. "Thus, a borrower, who is fearful of being in default as on 1st September and becoming an NPA soon thereafter, could continue to avail moratorium as a part of the resolution plan implemented in terms of the above circular," said the ministry.
The ministry added that this resolution framework also takes care of consequences of possible downgrade of an account to NPA even as the individual resolution plan is finalised.
"The borrower is required to simply get resolution 'invoked' by his lender under the RBI framework, before the account slips to NPA," said the affidavit.
The affidavit was filed in response to a bunch of petitions demanding waiver of interest, or waiver of interest on interest on the deferred EMIs during the moratorium period.