The Supreme Court on Wednesday said that banks are free to restructure loans, but they cannot punish honest borrowers by taking interest on interest to defer EMI payments under the Kovid-19 Pandemic's plan to defer installments (moratorium).

A bench headed by Justice Ashok Bhushan, during a hearing on the issue of charging interest on deferred installments during the postponement period, said that charging interest on interest is a double whammy for borrowers.

Petitioner Gajendra Sharma's counsel Rajeev Dutta said that he charged interest charged even during the period of installment postponement. He said, RBI brought this scheme and we thought that we would pay EMI after the installment postponement period, later we were told that compound interest would be charged. It will be more difficult for us because we have to pay interest on interest.

He further said, he (RBI) has given a lot of relief to the banks and we have not really been given any relief. Also, he said, there has been no lapse on my (petitioner) side and we cannot be punished by taking interest on interest to be part of a scheme.

Dutta claimed that the Reserve Bank of India is a regulator and not an agent of banks and the borrowers are being punished during the Kovid-19. He said, now the government is saying that the loans will be restructured. Reorganize, but do not punish honest borrowers.

Senior advocate CA Sundaram, appearing for the Confederation of Real Estate Developers' Association of India (CREDAI), told the bench that the installment moratorium should be extended for at least six months.

What is moratorium

Actually, loan moratorium is a facility under which corona affected customers or companies were exempted. Under this, customers and companies had the facility to postpone their monthly installments. Customers get relief with this facility, but they have to pay more money upfront.