On March 23, 2021, Supreme Court (SC) Bench of Justices Ashok Bhushan, R Subhash Reddy & MR Shah rejected the further extension of six months’ period (March 1,2020 to August 31,2020) of the loan moratorium scheme issued by the Reserve Bank of India due to the COVID 19 Pandemic against a petition filed by the traders and corporate bodies/ big borrowers.
- SC also added that no Interest on Interest (Compound Interest) will be charged on borrowers during the Moratorium period irrespective of the Loan Amount and any amount collected will be refunded.
- The refund or the adjusted amount is likely to be in the range of Rs 7000 crore to Rs 8000 crore.
- The Supreme Court has also refused to waive the entire interest on the loans, which government requires a major amount of Rs 6 lakh crore.
- On 27 March, 2020, RBI announced a Loan Moratorium Scheme, allowing lending institutions to grant a temporary relief to borrowers for payment of installments of term loans falling due between 1 March 2020 & 31 May 2020 due to the pandemic and consequent downturn in economic activities.
- The scheme aimed to provide borrowers more time to pay their EMIs without being classified as NPAs (Non-Performing Assets).
GoI’s Loan Waiver
- In October, 2020, Government of India decided to waive Compound Interest on loans of up to INR 2 Crore for the six-month moratorium period. It was announced for 8 categories – MSME (Micro, Small and Medium Enterprises), education, housing, consumer durable, credit card dues, auto, personal, and consumption.
- It is estimated that will cost the government Rs 14,000 crore to Rs.15000 crores for complete waive of compound interest to all borrowers, according to credit rating agency ICRA.
- Banks have already refunded the compound interest paid by borrowers for loans below Rs 2 crore was estimated to be Rs 6,500 crore, the extended waiver will cost an additional Rs 7,000-7,500 crore.
NPAs of India’s Banking Sector
- At the end of 2020, the gross NPA of Indian Banks stood at INR 7.4 Trillion, while net NPA stood at INR 1.7 Trillion due to SC’s standstill order on fresh bad loans.
- GNPA could have risen to INR 8.7 Trillion & net NPA ratio to INR 2.7 trillion in the absence of SC’s Standstill order.
Recent Related News:
i.On 10th September 2020, The Ministry of Finance formed a three-member expert panel headed by Rajiv Mehrishi, former comptroller and Auditor General of India to assess the impacts of the waiver of interest on the moratorium loans offered to the COVID-19 affected borrowers which ended on 31st August 2020.
About Supreme Court of India:
Chief Justice – Sharad Arvind Bobde (47th CJI of India)
Location – Delhi