Compound interest waiver for all loans under moratorium due to COVID-19 pandemic: SC

The supreme court waived off interest on interest charged by the banks for the period for which RBI allowed borrowers to defer loan repayment. RBI allowed borrowers to pause repayment in the wake of the economic crisis caused due to lockdowns implemented to slow the spread on COVID-19.

The ruling stated that “We are of the opinion that there shall be no interest on interest or compensation interest during the moratorium period irrespective of the loan amount. Any such amount collected shall be refunded,” if a refund is not possible, then the amount is to be adjusted against the next payable instalment. Furthermore, the ruling suggested that deliberate and wilful defaulters may still be charged compound interest.

The bench also clarified that borrowers will have to continue to pay interest on the principal amount during the moratorium period. The account holders and pensioners were stated as the reason why a complete waiver of total interest will not be possible.

Any sector-specific reliefs will have to come from RBI. The SC’s order stated “The Court will not embark upon an inquiry on whether public policy is wise or better policy can be evolved. Economic and fiscal policies are not amenable to judicial review and merely because a sector is not satisfied with a policy decision, cannot be the reason for interference unless there are malafides and arbitrariness in the said policy decision”.

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