The Supreme Court recorded in a judgment on Friday that lending institutions have returned over ₹4300 crore in compound interest collected from small borrowers during the moratorium period.
The ex-gratia payments have been made into 13.12 crore bank accounts across the country as of November 13, 2020, the court noted the submission made by Solicitor General Tushar Mehta for the government.
The payments were made in compliance of a government payback scheme introduced on October 23 to waive the difference in the compound interest and simple interest charged between March 1 and August 31 (moratorium period) for eight categories of loans worth up to ₹2 crore. The categories were: MSME, education, housing, consumer durables, credit card, auto, personal and consumption loans. The lending institutions included banking companies, public sector banks, cooperative banks, regional rural banks, all India financial institutions, non-banking financial companies, housing finance companies registered with the Reserve Bank of India (RBI) and national housing banks.
“Shri Mehta submits that in pursuance of circular dated October 23, 2020, the State Bank of India has informed that as on November 13, as per provisional, unaudited information received so far from various lending institutions, such lending institutions have released ex-gratia amount of an aggregate exceeding ₹4,300 crore in over 13.12 crore accounts of borrowers covered under the scheme,” a Bench led by Justice Ashok Bhushan noted in a 24-page judgment.
The Hindu Explains | What is a bank moratorium, and when does it come into play?
The order disposed of a petition filed by individual borrower Gajendra Sharma, who expressed his satisfaction with the government’s payback scheme. Mr. Sharma had argued that the charging of compound interest during the moratorium period was against the principle of natural justice. “The government on one hand ceased the working of the individuals and on other hand asking to pay the loan interest during moratorium,” he had complained.
The petition had led to the introduction of the waiver scheme as an “additional relief” to borrowers like Mr. Sharma who were affected by the pandemic-induced financial distress.
IBA’s plea to Bench
Meanwhile, the Indian Banks Association, represented by senior advocate Harish Salve, urged the Bench to withdraw its September 3 interim order restraining them from declaring as non-performing assets (NPAs) accounts found perfectly good till August 31, 2020.
The RBI, represented by senior advocate V. Giri, had made the same request from the court in a hearing on November 5. Mr. Giri had said the restraint order has led to “great difficulties” in the functioning of banks.
The September 3 order had directed that “accounts which were not declared NPA till August 31, 2020 shall not be declared NPA till further orders”.
Mr. Salve said the banks were being rendered helpless against defaulting borrowers.
The court agreed to examine the issue on December 2.