Guru Gyan
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Guru Gyan

To waive or not to waive

The decision of granting or not granting the interest waiver during loan moratorium.

The Supreme Court has deferred the hearing on the Interest Waiver Case till August 1st week by allowing more time to RBI & finance ministry to revisit the issue and assess the total burden of the moratorium.

The apex court has asked the central government to interfere in the matter and clarify if banks can charge interest on deferred interest as the issue cannot be left to the banks and the borrowers.

It all started,

when the petition was filed by a borrower, seeking interest waiver for RBI’s three-month loan moratorium from paying EMIs/loans amid lockdown. The petitioner argued that no interest should be charged at all during the moratorium as the interest will continue to accrue during the period which the customer will eventually have to pay.

Banks argue

State Bank of India (SBI) said 90% of borrowers had not even sought a moratorium and interest waiver cannot be issued ‘like a free gift’. Whereas the SC observed that customers did not opt for the moratorium because they know they aren’t getting any benefits.

What will happen if the interest waiver is granted?

The banks argued that waiving of interest for six months would cast a huge burden on the banks, erode flow of funds to industry and businesses and will further create a shortfall and a mismatch between a bank’s assets and liabilities.

The Reserve Bank of India (RBI) in early June had informed the court that any waiver on loan moratorium will hurt banks by as much as ₹2 lakh crore. This will be another hit for the banks as the economy is already suffering due to the ongoing pandemic.

Amid all the confusion with respect to the interest waiver case, the question arises,

When a large chunk of the customers has not opted for the moratorium and are paying their debt obligations on time, should the banks be allowed to waive interests off only for the ones who have taken the moratorium benefit (given the percentage of people opting for the benefit is very low)?

If not, what was the benefit of opting for the loan moratorium anyway?

All eyes will now be on the government’s stand and clarity on the moratorium matter as well as the next hearing date.

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