The Supreme Court on Thursday said it will announce its verdict on the plea for an interest waiver during the six-month loan moratorium period till August 31 in two weeks’ time. The court allowed parties to file all documents and decisions in the next two weeks.

The court indicated that banks may not be allowed to charge interest on interest during the six-month moratorium period on loans even as it gave the Centre and the RBI two weeks to come out with a suitable mechanism on charging interest from customers and allay their apprehensions regarding credit rating downgrades by banks.

A bench of Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah passed the directions after Solicitor General Tushar Mehta appearing for the Centre sought two weeks adjournment on the grounds that the issue with regard to compound interests, downgrading of credit ratings during the moratorium period was being considered “at the highest level”.

“With respect to interest, we are yet to take a decision but on the aspect of debiting of interest on interest, we are inclined to pass an order that it may not be debited,” Justice Bhushan heading the bench orally observed during the hearing.

In other words, the court holds prima facie the view that it would not be proper for banks to charge interest on interest during the six-month moratorium on loans announced by the RBI which ended on August 31.

The court also recorded the submission of various petitioners that status quo be maintained on the court’s interim order. The order said no account shall be declared NPA by banks post August 31 till the present matter was resolved.

The bench was dealing with a batch of petitions filed by UP-based businessman Gajendra Sharma and several others challenging the banks’ decision to charge interests on interests during the six-month moratorium period. The petitioners also wanted the extension of the moratorium period which had ended on August 31.

Senior advocate Harish Salve, appearing for banks’ association said that norms and guidelines have to be issued with regard to individual borrowers. The bench asked who will formulate “these norms” to which Salve replied that the finance ministry will do as it has been done at the level of the RBI.

Mehta said that it was being done at a level higher than the RBI and whatever will be there it would be comprehensive. Salve pointed out that for the power sector, the states will have to be taken on board as entire loans cannot be put on banks.

Panel on waivers

The government has formed a three-member committee under former CAG Rajiv Mehrishi to look into the concerns raised during the Supreme Court hearings in the Covid-19 loan moratorium case.

The panel will help the government assess the need to offer relief to borrowers on the issue of interest charged on loan instalments deferred during the moratorium period. The panel will measure the impact of the pandemic on the economy and the financial viability of waiving of interest and of interest on interest for this payment holiday.

The committee will suggest ways to alleviate financial constraints of borrowers and other suitable measures, the finance ministry said in a statement.

The committee will also have Ravindra H. Dholakia, former professor, IIM Ahmedabad & ex-member, Monetary Policy Committee of the RBI, and B. Sriram, former managing director, State Bank of India & IDBI Bank. The committee will submit its report within a week.

Additional reporting by our special correspondent in New Delhi