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SC asks government to clarify on interest on loans during moratorium

By IT Correspondent

NEW DELHI, June 6:

The Supreme Court has asked the union finance ministry to reply, whether the interest on the Equated Monthly Installments (EMIs) of loans, pending during lock down, can be waived or it will continue to be charged even for the period of moratorium allowed by the Reserve Bank of India (RBI). 

While hearing a petition, a bench comprising Justices Ashok Bhushan, Sanjay Kishan Kaul and M.R. Shah said that it is a serious issue that while a moratorium was granted on EMI payment by the RBI, the interest is being charged on loan amount for that period. There are two issues—”No interest during moratorium period” and “no interest on interest”, said Justice Bhushan. The bench directed Solicitor General Tushar Mehta, representing the Centre, to file a reply on or before 12 June 2020 in this regard. 

The bench was dealing with a petition filed by Gajendra Sharma, a resident of Agra in Uttar Pradesh, seeking waiver of interest on bank loan, for the period of the moratorium prescribed by the RBI.  He informed the court that he had taken a home loan of Rs 37 lakh from ICICI Bank, and that due to the lockdown, he had no income and was unable to pay the EMIs.

He demanded that interest on loan be waived for the period of the moratorium prescribed by the RBI. 

“The interest charged during moratorium period would be added up into the EMIs at the end of three-month forbearance and he will have to pay this additional interest in one go. Even if the additional interest burden for three months moratorium period is equally divided in all future EMIs, the monthly bill for customer will increase.” The RBI’s decision to delay EMI payments but allowing interest on accumulated amount negates the relief provided”, the petitioner explained. 

As the country grappled with Covid-19, on 27 March, the RBI had prescribed a three-month moratorium on EMIs, which was extended for another three months. The moratorium exempted borrowers from paying their EMIs for a specific period of time and this deferment of payment provided relief to borrowers. However the notification stated that the interest will continue to be charged on accumulated amount. 

During the hearing of Sharma’s petition, the RBI stated that the waiver of interest charges on EMIs during moratorium will lead to loss of one per cent of the GDP and as such it was not feasible to waive the interest. 

However Sharma’s counsel, senior advocate Rajeev Dutta, told the court that RBI’s 27 March  notification should be treated as ultra wires since it permits, collection of interest on the loan amount during the moratorium period. He said that the Centre was looking at the profitability of the banks. However in the matter of repatriation of Indians stranded abroad, under “Vande Bharat Mission”, the SC has directed the Air India to keep middle seats vacant on non-scheduled flights, to avoid the spread of infection. This was despite the fact that the airline was losing a sizable revenue.  Justice Bhushan said the court is well aware, and the economic aspect is not greater than the health of the people.

Raju Vernekar

Raju Vernekar is a Media Professional based in Mumbai and is a regular contributor of Imphal Times. He had served as Chief Reporter at Free Press Journal (1996 – 2015 ). His Activities includes writing for different news papers, script writing/production for TV channels, Films Division. Writing poems in Marathi, Hindi, English, Guiding mass media students and helping people to solve their problems. Raju may be contacted at [email protected]

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