6-month Interest-Free Moratorium wavier from SC will ensue in the loss Rs 2 lakh crore to Indian banks says RBI

New Delhi. The Reserve Bank of India (RBI) on Wednesday informed the Supreme Court that if the loan repayment of Moratorium for a period of 6 months is made interest-free, it will cause a massive loss of Rs 2.01 lakh crore. This is comparable to 1 percent of the national GDP. The RBI has rebuffed and protested the interest-free period of the moratorium period. The central bank asserted that the purpose of the moratorium is only to suspend the responsibility of loan payment and not to exempt from payment.

 Loss of NBFC’s and other financial institutions not included

In a counter-affidavit filed in the Supreme Court, the RBI said that losing Rs 2,01,000 crore from the interest-free will only be done to the banking system. This excludes non-banking finance companies (NBFC’s) and other financial institutions.

If banks do not take this amount, then it will cause an enormous loss, jeopardizing the stability and further pivotal activities of the banking system. The RBI stated that any economic relief carries an opportunity cost. If the arguments of the petitioner are accepted, then the burden of this opportunity cost on the borrowers will fall on the lenders and the depositors of the country.

Warning about the repercussion, RBI further concluded that “If the banks are required to forego the above amount, there would be huge consequences for the stability of the banking system.”

Many people have filed petitions in the Supreme Court

Innumerable petitions have been filed in the Supreme Court against the grant of moratorium facility by RBI. The petitions state that without giving relief to the interest rates, the scheme will not get any benefit to the borrowers. It was only on these petitions that the Supreme Court sought a response from the RBI. The RBI has opposed these petitions while filing its reply in the Supreme Court. 

What is Moratorium?

In March, given the economic activities halted because of Corona infection, the RBI first announced on 27th March to give the borrowers a 3-month Moratorium facility on loan payments-1st March to 31st May. This facility was given from March to May. In May, the RBI again extended the moratorium for three months to 31 August.

Moratorium period will pay interest

While announcing the Moratorium, the RBI had clearly stated that only loan payments to borrowers have been postponed under this facility. The RBI had said that the borrowers who take advantage of this facility will have to pay the interest for this period.