The Supreme Court on Tuesday ruled that compound interest (interest on interest) be waived on all borrowers, irrespective of the size of the loan, that availed a six-month loan moratorium announced by the Reserve Bank of India (RBI) between March 1, 2020, and August 31, 2020. Here is all you need to know about the order:
• It will likely benefit those with loans in excess of ₹2 crore and increase the cost of the government, should it desire to pay for the waiver, by around ₹7,000 crore.
• The apex court also removed a nearly seven-month-long stay on classifying loans as bad (or as non-performing assets, NPAs)
• It rejected pleas seeking an extension of the moratorium, more relief, and a complete waiver of interest.
• In the wake of the Covid-19 pandemic and the lockdown imposed to slow its spread, RBI, on March 27, announced a three-month moratorium on loans.
• This was extended by three more months till August 31.
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• But because banks treated the interest that would have otherwise been paid during the moratorium as a separate loan, and said they would charge interest on it, a public interest litigation was filed in the Supreme Court seeking waiver of this interest on interest.
{{/usCountry}}• But because banks treated the interest that would have otherwise been paid during the moratorium as a separate loan, and said they would charge interest on it, a public interest litigation was filed in the Supreme Court seeking waiver of this interest on interest.
{{/usCountry}}• In October, during a hearing of this case, the Union government told the Supreme Court that this interest on interest would be waived for eight categories of small borrowers who availed loans up to ₹2 crore.
• The categories were MSME loans, education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professionals, and consumption loans.
• At the time RBI told the court that banks would work with companies in sectors hit hardest by Covid-19 (hotels and power, for instance) to restructure loans under a special so-called restructuring window that would be open till December 31, 2020.
• This was challenged by various industry associations, business groups and trader bodies demanding more and similar relief.
• Another clutch of petitions heard by the court demanded waiver of regular interest during moratorium, the extension of moratorium beyond August 31, 2020, the extension of the period for restructuring of loans by banks beyond December 31, sector-wise relief schemes for particular industries, and further relief beyond what was already provided.