The Supreme Court has observed that there is no justification for charging compound interest or penal interest during the period of loan moratorium which was allowed by the Reserve Bank of India from March 1 to August 31 last year on account of the COVID19 pandemic.
The Court observed that compound interest is chargeable on wilful or deliberate default by the borrower to pay the due installments. So, when the installments have been deferred based on the moratorium declared by the RBI, the non-payment of installments cannot be termed as willful. Therefore, there is no justification in charging compound interest, which is in the nature of a penal interest, during the moratorium period, the Court said.
The Supreme Court made these observations while disposing off a batch of petitions which sought various reliefs such as waiver of interest, extension of moratorium etc.
The bench observed that there is no rationale in the Centre’s policy to limit the benefit of waiver of compound interest only to certain loan categories less than Rs Two Crores. Last year, the Centre had taken a decision to allow waiver of interest on interest in eight specified categories for loans up to Rupees 2 crores.
The categories in which the Centre and the RBI agreed to waive compound interest during the loan moratorium period are :
- Education loans up to Rs. 2 crore
- Housing loans up to Rs. 2 crore
- Personal loans to professionals up to Rs. 2 crore
- Consumer durable loans up to Rs. 2 crore
- MSME loans up to Rs. 2 crore
- Credit card dues up to Rs. 2 crore
- Automobile loans up to Rs. 2 crore
- Consumption loans up to Rs. 2 crore
At the same time, the Court observed that it was not possible to order complete waiver of interest during the loan moratorium period, as the banks have to pay interest to depositors, pensioners etc. Banks have to meet administrative expenses as well. There may be several welfare funds schemes, category specific and sector specific which might be surviving and are implemented on the strength of the interest generated from their deposits.
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