'Public going through hell' due to interest on interest: Borrower tells SC on loan moratorium issue

As the Supreme Court resumed hearing on a plea seeking interest waiver for loan moratorium period granted by Reserve Bank of India (RBI), a petitioner told the apex court that banks are free to restructure loans, but they cannot penalise honest borrowers by charging interest on deferred EMIs under the moratorium scheme during the coronavirus pandemic.

A bench headed by Justice Ashok Bhushan, which commenced final hearing on a batch of petitions on waiver of interest on deferred loans, was told that paying interest on interest is a "double whammy" for borrowers and banks cannot charge it.

"RBI came out with the scheme and we thought that we will be paying the EMI after the moratorium period and later we were told that compound interest would be charged and it will be double whammy for us as we will be paying interest on interest," said lawyers appearing for the petitioner.

Senior counsel Rajiv Dutta, appearing for the petitioner Gajendra Sharma who has taken home loan from a bank, told the court that "public at large is going through hell of a time". He argued that if the Insolvency and Bankruptcy Code (IBC) could be suspended to provide respite to the companies, but what about the borrowers.

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"They have given so much relief to banks and we are not given any relief in actual terms", he said, adding that "there is no default on my (petitioner) part and we cannot be penalised for availing a scheme by being charged interest on interest," Dutta told the court.

Dutta claimed that Reserve Bank of India (RBI) is a regulator and "not an agent of banks" and borrowers are being penalised during the COVID-19 times.

"Now the government is saying that they will restructure the loans. You restructure but don't penalise the honest borrowers," he said.

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In March, the RBI had announced a moratorium on repayment of loans for three months, which was further extended till August 31. The move was intended to provide relief to borrowers in wake of the coronavirus pandemic and subsequent lockdowns.

Earlier on Tuesday, the central government and the RBI had told the apex court that moratorium period on repayment of loans during the COVID-19 pandemic is "extendable" by two years and several steps have been taken to help the stressed sectors. The Centre had told the top court that waiver of interest on deferred EMIs during the moratorium period would be against "the basic canons of finance" and unfair to those who repaid loans as per schedule.

In a bid to provide relief to borrowers, the RBI has come out with a scheme which provides for extension of moratorium for two years to certain stressed borrowers, the central government had informed the apex court.

The Ministry of Finance had filed an affidavit before the Supreme Court which had asked the Centre and the RBI to review the move to charge interest on EMIs and interest on the interest during the moratorium period introduced under the scheme due to the COVID-19 pandemic.

By Chitranjan Kumar with PTI inputs