NEW DELHI: The Centre on Tuesday told the Supreme Court that waiver of interest during the moratorium period for all borrowers would not be in the larger national economic interest as it would be not viable and may trigger collapse of the entire banking system.
Solicitor General Tushar Mehta told a bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah that waiver of interest on all loans for the moratorium period would cause loss of more than Rs 6 lakh crore to banks and financial institutions.
“If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their survival. This was one of the main reasons why waiver of interest was not even contemplated and only payment of instalments was deferred,” the Centre said.
Explaining the adverse impact on the financial health of the banks, the government contended that waiver of six months’ interest would completely wipe out over half of the net worth of State Bank of India, the country’s largest bank. The Centre said it was even impossible for banks to bear the burden resulting from waiver of compound interest without passing this on to the depositors or thus affecting their net worth adversely.
“The only solution, under the circumstances, was that the government bear the burden resulting from waiver of compound interest to the defined category of borrowers. This court would be satisfied that the government bearing this burden would naturally have an impact on several other pressing commitments being faced by the nation, including meeting direct costs associated with pandemic management, health sector, addressing basic needs of the common man and mitigating the common man’s problems arising out of loss of livelihood,” the Centre said.
“The government, therefore, has decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers. This category of borrowers, in whose case, the compounding of interest will be waived, would be MSME loans and personal loans up to Rs 2 crore,” it said.
The hearing remained inconclusive and would resume on Wednesday.