Supreme Court snubs RBI - says interest on interest is not desirable*

*Supreme Court snubs RBI - says interest on interest is not desirable*

The Supreme Court, on June 17, 2020 said there is "no merit in charging interest on interest" for deferred loan payment instalments during the moratorium period announced in wake of the COVID-19 pandemic.

A bench headed by Justice Ashok Bhushan observed that once moratorium is fixed then it should serve the desired purposes and the government should consider interfering in the matter as it cannot leave everything to banks.

Once the moratorium is fixed then it should serve the desired purposes and we see no merit in charging interest on interest," the bench, also comprising Justices S K Kaul and Justice M R Shah, orally observed.

The bench was hearing a plea filed by an Agra resident Gajendra Sharma, who has sought a direction to declare the portion of the RBI's March 27 notification "as ultra vires to the extent it charges interest on the loan amount during the moratorium period, which create hardship to the petitioner being borrower and creates hindrance and obstruction in 'right to life' guaranteed by Article 21 of the Constitution of India".

Solicitor general Tushar Mehta, appearing for the Centre and the Reserve Bank of India, told the apex court that waiving the interest completely will not be easy for banks as they have to pay interest to their depositors.

"There are 133 lakh crore rupees in deposits with banks and interest has to be paid on them and the waiver will have a cascading effect," Mehta told the bench.

The bench, which posted the matter for hearing in first week of August for allowing the Centre and the RBI to review the situation, asked the Indian Banks Association to examine whether they can bring new guidelines in the meantime on the issue of loan moratorium.