Will There Be Interest On Interest For Payments Deferred Due To Moratorium, SC Asks RBI, Centre

The Supreme Court on Friday sought to know from the Union Ministry of Finance and the Reserve Bank of India if deferment of payments on account of the 6-month loan moratorium will entail accrual of interest on interest.

"Whether the payment will impose interest on interest or not ", a bench comprising Justices Ashok Bhushan, S K Kaul and M R Shah asked. 

The Court said that its query was on this limited aspect of interest on interest.

"We are doing balancing. The only thing we are wanting is a wider measure. Our concern in these proceedings is only whether the interest that has been deferred will be added to charges payable later and whether there will be interest on the interest(sic)", the bench observed.

The Solicitor General, Tushar Mehta, told the bench that Finance Ministry is convening a meeting with the RBI on the issue over the weekend. The hearing was accordingly adjourned till June 17.

The State Bank of India intervened in the plea to submit that all banks are of the view that interest cannot be waived for a six month period. 

The bench was hearing petitions filed Gajendra Sharma and few others challenging the RBI Circulars of March 27 and May 22 to the extent they allowed financial institutions to levy interest on loans during the 6-month moratorium.

The RBI has filed a counter-affidavit in the matter stating that the waiver of interest would affect the financial health of lending institutions

 In the previous hearing held on June 4, the top court had expressed concerns over allowing levy of interest during the moratorium period allowed for loan repayments.

 Accrual of interest while allowing moratorium is "detrimental", the bench had orally observed on that occasion.