“Petitioners should not seek any more interest waivers”: Centre to Supreme Court

The Centre in the affidavit has made it very clear that further relief can not be provided beyond waiver of interest-on-interest for specific categories of loan account having borrowing up to Rs 2 crore. 

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The central government has filed an affidavit in the Supreme Court on waiving interest on interest. The Centre on Friday informed any waiver of interest on interest or compounding will have to entail significant economic costs which cannot be deadened by any bank without a serious dent of their financials. “It will also have huge implications for broader financial stability and depositors,” the affidavit stated.

The Centre in the affidavit has made it very clear that further relief can not be provided beyond waiver of interest-on-interest for specific categories of loan account having borrowing up to Rs 2 crore.

The Reserve Bank India told Supreme Court, “The focus of Resolution Framework issued by the Reserve Bank on August 6, 2020, is at boosting the revival of real sector activities and mitigating the impact on the ultimate borrowers, under the financial stress due to COVID-19 pandemic.”

“In terms of the Resolution Framework, only those borrower classified as standard will be eligible for the resolution, not in default for more than 30 days with the financial or lending institutions as on March 1, 2020,” it also added.

In the wake of the novel Coronavirus, the RBI on March 27, 2020, introduced moratorium rate, said all lending institutions, including banks and housing finance companies, will have to give their borrowers a three-month moratorium on term loans, period between March 1 and May 31, 2020. The EMI moratorium was extended for 3 additional months in August on term loan ending on August 31. 

RBI further stated, “a long moratorium exceeding six months can disrupt the credit behaviour of borrowers as well as increase the risks of frauds post resumption of scheduled payments.”

Here are the noted pointers from the affidavit presented by the centre in the apex court:

  • The decision to waiver interest on interest can mature into an Office Memorandum, Circular, Order after due process.
  • The mandatory procedure needs to be followed given the vast financial impact involved.
  • Would need an appraisal by the Expenditure Finance Committee, would then be placed before Cabinet for approval.
  • After the cabinet approval, it will require authorization from Parliament to incur additional expenditure beyond current budgetary provisions.
  • Courts should be wary of judicially deciding fiscal management issues.
  • Petitioners cannot be seeking any more interest waiver, sector-specific relief.
  • Financial stress management measures are not suited for being judicially decided or being subjected to judicial review.
  • Central Government, all stakeholders have discharged their responsibility in the best possible manner under the unprecedented circumstances.
  • Observing the complex nature of fiscal, lending issues, the Supreme Court should not allow the petitioners to seek any further judicial review of decisions taken.

“The decision enacted by the government to supply extra relief to a huge segment of borrowers has addressed the prayers of the petitioners.” Reserve Bank said.

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