Banks free to restructure loans, but can’t penalise borrowers, Supreme Court told

New Delhi, September 2: Banks are free to restructure loans, but they cannot penalise honest borrowers by charging interest on deferred EMIs under the moratorium scheme, a petitioner said in the Supreme Court on Wednesday. 

The top court was hearing a batch of petitions seeking a waiver of interest on deferred EMIs during the moratorium period, which was introduced by the RBI in June to ease the burden on existing borrowers in wake of coronavirus pandemic-related restrictions, NDTV reported. 

The Centre argued that waiving off loans will weaken the banking sector. Lawyers arguing in favour of a waiver of interest on interest on deferred loans told the court that “public at large is going through hell of a time”. If the Insolvency and Bankruptcy Code (IBC) could be suspended to give relief to the industry, what about the borrowers, the lawyers argued.

A bench headed by Justice Ashok Bhushan was told that paying interest on interest – or interest on those choosing to take the benefit of the moratorium – is a “double whammy” for borrowers. “Instead of giving respite, the banks are encashing on this (COVID-19),” the lawyers argued in the top court and sought Reserve Bank of India’s position on the matter.

Senior advocate CA Sundaram, representing real estate industry body CREDAI in the case, said it is unfair to charge interest, and this may lead to increase in non-performing assets for banks. Sundaram also suggested that the moratorium should be extended for at least six months. CREDAI’s counsel further argued that even if the interest cannot be waived of, at least it should be reduced to a level at which banks pay depositors. 

The Association of Power Producers lawyer KV Viswanathan told the Supreme Court that power producers are among the most stressed sectors and asked banks to forego profit for this year as real estate and many other sectors were fully shut during the lockdown.

Senior advocate Ranjit Kumar, representing Shopping Centre’s Association, told the Supreme Court that relief should be sector-wise. Pharma, FMCG and IT sectors did well during the lockdown, but malls and shopping centres did not, he pointed out.’ 

Senior advocate Kapil Sibal, quoting government data, told the top court that construction sector showed negative 50 per cent growth and 57 per cent insolvency cases resulted in liquidation. There will be many defaults if moratorium is not extended, Sibal emphasized.

The Coimbatore Jewellery Manufacturers Association (CJMA) also sought waiver on loan interest. 

Solicitor General Tushar Mehta told the Supreme Court that banks play a vital role in the economy. Economic revival and stressed asset reconstruction can only take place when banks are strong, Mehta asserted, and expressed the fear that writing off interest straightaway will weaken the banking sector. He also said the impact of Covid-19 varied from sector to sector; pharma benefitted from the pandemic, while construction and hotels took a huge hit.

On Tuesday, the government had told the Supreme Court that the moratorium – to defer loan repayments during the coronavirus crisis – can be extended by two years, a day after the government’s deadline for temporary relief on loan repayments ended.

The Centre had also said that a waiver of interest on deferred EMIs would be against “the basic canons of finance” and unfair to those who repaid loans as per schedule.

The Supreme Court will resume its hearing on Thursday, regarding waiving interest and extending moratorium.

https://www.ndtv.com/business/banks-free-to-restructure-loans-but-cant-penalise-borrowers-supreme-court-told-2289169