Banks cannot charge compound, penal interest from borrowers on Loan Moratorium: SC

Reserve Bank of India

The Supreme Court of India on Tuesday refused to interfere with the Centre, RBI decision on extension of loan moratorium period after Aug 31, 2020, marking it a policy decision.

The apex court, however, said that banks cannot levy any compound, penal interest on the borrowers during loan moratorium period and the amount charged already shall be refunded or adjusted.

A bench chaired by Justice Ashok Bhushan stated that the Supreme Court cannot do judicial review of the Centre’s financial policy decision unless it is malafide and arbitrary.

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The bench gave the verdict on the pleas that were filed by several trade associations, including from real estate and power sectors, seeking extension of loan moratorium and other reliefs in view of the pandemic.

On 27th March 2020, the Reserve Bank of India issued the circular permitting lending institutions to allow a moratorium on payment of instalments of term loans falling due between 1 March, 2020 and 31 May, 2020, due to the pandemic.

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 The moratorium was later extended till 31 August 2020. In its verdict, the apex court stated that looking at the various measures taken by the government and the RBI, it would be wrong to say that the reliefs of the borrowers are not considered.

The bench stated that it cannot alter a policy decision solely keeping the benefit of the petitioners in mind.

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