NEW DELHI / MUMBAI (Reuters) – India’s Supreme Court has refused to extend a six-month moratorium on loan repayments that ended on August 31 last year, offering great relief to banks, but said no borrowers may be charged with any form of additional interest arising during that period.
The Reserve Bank of India (RBI) had allowed banks to offer a repayment moratorium to borrowers for six months starting in March last year after the government of Prime Minister Narendra Modis imposed the world’s toughest blockade on COVID-19.
However, claimants ranging from individuals to trade associations had complained that the additional interest accrued during the moratorium to be charged to customers after the resumption of repayments would have the effect of increasing the burden on borrowers.
Rejecting requests for an extension of the moratorium, the high court said the government and the central bank decide on economic policy based on expert opinion and the court cannot be expected to have economic expertise.
Based on the various steps taken by the RBI and the central government, Justice MR Shah said during the reading of the trial, the issues faced by the borrowers had been addressed. But, he said, there should be no interest charge for interest.
Indian banks had hoped that borrowers would not be given a further break beyond waiving the compound interest on loans of up to 20 million Indian rupees ($ 276,000) for six months, the interest burden the government had agreed to bear and to compensate banks.
The High Court, however, said there was no justification for extending the waiver of interest only on loans up to 20 million and said that all borrowers, regardless of loan amount or category, should waive and have interest , if already charged, to be reimbursed in some form by banks.
The Nifty PSU banking index, which tracks state-run banks, rose 3.93% to its highest level since the March 17 decision. The Nifty Bank index, which tracks 12 major stocks capitalized by the banking sector, rose to 2.07%.
($ 1 = 72.3350 Indian Rupees)
Additional reporting by Nupur Anand; Edited by Christopher Cushing; Edited by Kenneth Maxwell
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