The central bank pointed out that the petitioner had misinterpreted the moratorium as a waiver, which was actually a deferment of existing and current liabilities.

The Reserve Bank of India told the Supreme Court that a forced interest waiver will make a huge dent in the stability of the financial institutions, therefore, the court should reject the plea seeking interest waiver in the loan moratorium period. RBI has estimated a loss of nearly Rs 2 lakh crore if the SC allows interest waiver in the moratorium period. In the wake of the coronavirus pandemic-led financial crisis faced by many people, the RBI had earlier announced a loan moratorium period of three months, which was further extended for three more months. While the provision allowed no penalty on non-payment of the principal amount, the interest on EMI kept on accumulating.

The central bank pointed out that the petitioner had misinterpreted the moratorium as a waiver, which was actually a deferment of existing and current liabilities. The central bank argued that the interest waiver will adversely affect the business of banks and hurt their financial stability. It said that the banks must remain sound and profitable to ensure the safety of depositors and the financial stability of the country. Stating income on interest as an important source of earnings, it added that borrowing or a loan is in the nature of a commercial contract between the lender and borrowers and that the interest rate reflects the same.

Borrower’s EMI liability per month is made up of two components viz principal and interest, which primarily depends on the interest rate and the term of the loan. Let us assume that a borrower has an EMI liability of Rs 7,000 per month, made up of Rs 4,500 of principal amount and Rs 2,500 of interest. Under the provisions of the moratorium period, if the borrower has not paid any money to the bank in the period of six months, the total outstanding amount in the seventh month will sum up to around Rs 22,000, including the interest of the previous six months.

Meanwhile, RBI has assured that it is watchful to the constraints caused by the lockdown and that was the reason behind the extension of the moratorium to six months. It further clarified that the final decision on the loan moratorium process has been completely left to the banks’ discretion and the RBI has no role to play in this.