Why Benefit Credit Card Users? SC on Moratorium Interest Waiver

The Supreme Court of India has asked the Central Government why Credit Card Users should get the benefit of compound interest waiver during the period of loan moratorium scheme of the Reserve Bank of India (RBI). The Apex Court said that since Credit Card users are not availing any loan but only transacting to purchase goods, the loan moratorium interest on interest waiver benefit should not be offered to them.

The response of SC came after Solicitor General Tushar Mehta who is representing the Central government told Supreme Court that Credit Card users would also get ex-gratia payments.

He said, “I am a Credit Card user. I received SMS for ex-gratia payment.”

The Court remarked, “Credit Card users purchase things using Credit Cards. They have not availed loans. They should not be given this benefit.”

The Bench of Justices viz. Ashok Bhushan, MR Shah, and R Subhash Reddy was hearing a batch of petitions related to charging ‘interest on interest’ for borrowers who had availed of the Loan Moratorium scheme of RBI, introduced in line with the COVID-19 or coronavirus pandemic.

RBI and the Union Finance Ministry had separately filed affidavits in the Apex Court saying that all eligible borrowers will be entitled to receive the difference between Compound and Simple Interest accumulated on loans up to Rs. 2 Crore during the moratorium period.

It was stated that the said amount will be credited to the accounts of eligible borrowers by Banks and Non-Banking Financial Institutions before 5^th November.

RBI also informed the Court that it has requested all financial institutions, Non-Banking Financial Institutions, and Banks to take “necessary actions” ensuring that the amount is extended to all eligible borrowers within the stipulated time.

It was also submitted by the Central Government that the Finance Ministry had issued a scheme according to which lending institutions will credit this amount to borrowers’ accounts.

The Apex Court had observed on 14^th October that the Central Government should implement the interest waiver on loans of up to Rs. 2 Crores as soon as possible under the RBI’s moratorium scheme.

RBI had issued a circular in March this year, which allowed lending institutions to provide a moratorium on payment of term loans due between 1^st March 2020, and 31^st May 2020, due to the pandemic. Later, the moratorium scheme was extended till 31^st August 2020.

The Solicitor General, during the hearing on Thursday, told Supreme Court that banks are obligated to transfer the compound interest waiver offered to eligible borrowers under the loan moratorium scheme of RBI even without the borrower making any such demand.

Mehta submitted that this is the responsibility of banks to credit the waiver of compound interest for loans up to Rs. 2 Crores and not of consumers to remind the banks about this scheme.

It was submitted by Dr. Abhishek Manu Singhvi, representing power generating companies that the power sector is an essential and abused segment and requested for tweaking of the circular to make it inclusionary so that this sector can also avail the benefits of the scheme.

He submitted, “A larger part of the borrowings cannot be restructured due to certain exclusions. A large part of the borrowings is by LIC. Moreover, the RBI circular provides for restructuring at the instance of the lender and not the borrower which defeats the purpose of the circular.”

He added that these loopholes need to be rectified by RBI, it needs to revisit the circular and make these changes.

The Supreme Court, however, declined to pass any order and instead asked Singhvi’s client to make a representation before RBI.

The case will be heard again next week.