Will the period of Loan Moratorium extend Today?

The Covid-19 outbreak has been a threat to humans since the day it was found. It has caused a dramatic loss of human life worldwide and has reached numbers that were once unpredictable. The adverse impact of the raging virus is heartbreaking from mental health to physical health to the economic status. The impact of the virus has been deep not only on the Indian economy but also the economies around the world. Lockdown and social distancing which seem to be the only alternatives to Covid-19 turned into a hurdle for the economy and the livelihood of many. The pandemic has placed an unprecedented burden on the world economy, healthcare, and globalization through not being able to travel, events cancellation and unemployment of workforce; food chain, academics, and healthcare capacity have also suffered. Certain countries have been more vulnerable than others. By dint of the lockdown many have lost a source of income which further led to denial of basic human needs such as food and shelter.

To overcome this misfortune the Reserve bank of India on 27th March, 2020 introduced a scheme which gave a lot of people a shining beacon of hope. The borrowers were relieved of a huge burden after the words Loan Moratorium were introduced to them. Through the Loan Moratorium Scheme the borrowers falling between 1st March, 2020 to 31st May, 2020 were given some relaxation in the payment of their EMI’s to the lending institutions however to the people who fell in the specific categories. The RBI and the centre agreed to waive the Compound Interest of selected categories namely:

  1. MSME loans up to Rs. 2 crore
  2. Education loans up to Rs. 2 crore
  3. Housing loans up to Rs. 2 crore
  4. Consumer durable loans up to Rs. 2 crore
  5. Credit card dues up to Rs. 2 crore
  6. Automobile loans up to Rs. 2 crore
  7. Personal loans to professionals up to Rs. 2 crore
  8. Consumption loans up to Rs. 2 crore

The Moratorium period was then on request extended for another three months that is till 31st August, 2020. This Scheme did not only aid the people but also the government as it prevented formation of Non Performing Assets (NPA) and formation of bad loans. Looking at the Covid-19 condition another appeal was filed which requested an extension for the period of the validity of this scheme to 31st March, 2021. On 19th November, 2020 the centre had urged the court to not intervene and provide further relief to the borrowers.

Small Scale Industrial Manufacturers Association filed a case (Small Scale Industrial Manufacturers Association v. Union of India) seeking Waiver from the interest on interest which they were supposed to pay. This was after they were not being able to pay the EMI’s even though they had availed the scheme along with the extension of the scheme. The hearing for the same is today. The judgement will be delivered today by a bench consisting of Ashok Bhushan, R Subhash Reddy and MR Shah.

The court addressing the concerns directed that the borrowers, irrespective of their loan amount, should not be charged an interest on interest or penal interest on their installments during the loan moratorium from 1st March, 2020 to 31st August, 2020. If an interest of such nature had already been collected by the banks or financial institutions they were ordered to either return such collection or adjust the amount in their further installments. They further directed the centre to form a fresh policy in respect of interest on interest as complete waiver of compound interest was not possible due to fact that the banks also had to pay interest to the depositors and pensioners. The court rejected their plea on an extension of loan moratorium. The bench added that no writ of mandamus could be issued to direct the Reserve bank of India or central government to provide relief to particular sectors beyond the ones already recognised. To conclude the court also held that the scope of judicial review in economic policy matters is limited as the RBI and the central government are experts in that field.

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