Waiver of Interest on Interest During Moratorium on Fundamental Canons of Finance, Auto News, ET Auto
NEW DELHI: The Ministry of Finance in an affidavit informed the Supreme Court a waiver of interest on interest during moratorium would go against the basic canons of finance, and the RBI Circular of August 6 authorized lenders to authorize a moratorium of up to two years.
The department stated in the affidavit: “The resolution plans may include, among other things, the rescheduling of Payments, the conversion of any interest accrued, or to be accrued, into another credit facility, or, the granting of a moratorium, based on an assessment of the borrower’s income streams, subject to a maximum of two years. “
He added that the moratorium period, if granted, will come into effect upon implementation of the resolution plan.
The ministry said with the RBI circulars of August 6, banks were fully empowered to resolve Covid stress and customize relief to individual borrowers through the granting of various concessions in terms of: “(i) modification of the interest rate and discount on the amount payable as interest; (ii) extension of the residual term of the loan, with or without a moratorium, up to two years; (iii) the elimination of interest and penal costs; (iv) the rescheduling of repayment; (v) the converting accrued interest into a new loan with a deferred payment schedule; and (vi) sanctioning an additional loan. “
The ministry said the RBI circulars dealt with the MSME private sector, personal loans and business loans, bearing in mind the overall financial stability of the economy, the economic stability of the banking sector and the interests of depositors.
“It is respectfully submitted that in view of the fact that the time frame for the pursuit of current economic problems is uncertain, as a policy it is undesirable to give ‘one size fits all’ solutions,” the affidavit stated.
The ministry insisted that in any banking sector, when financial assistance is provided in the form of loans, a balance must be maintained with the interests of depositors’ crores, most of whom are only depositors and survive interest. that they receive on their deposits.
“On an approximate basis, there are over 197 crores of deposit accounts in the country in commercial banks alone, in which depositors have deposited their money and earn interest,” the ministry added.
Elaborating on the extendable moratorium, the ministry said this extended moratorium is part of an individualized solution for a borrower and is made available with other interventions. “Thus, a borrower, who fears being in default on September 1 and becoming an NPA shortly thereafter, could continue to benefit from a moratorium under the resolution plan implemented under the terms of the circular. above, ”the ministry said.
The ministry added that this resolution framework also takes care of the consequences of a possible downgrading of an account in NPA even though the individual resolution plan is finalized.
“The borrower is required to simply get a resolution ‘invoked’ by his lender under the RBI, before the account slips to the NPA,” the affidavit reads.
The affidavit was filed in response to a slew of petitions demanding the waiver of interest, or waiver of interest on interest on deferred IMEs during the moratorium period.
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