'Interest on Interest' termed not satisfactory by Supreme Court
The fiscal cost of the interest relief proposed by the Centre is variously estimated between Rs 5,000 crore and Rs 30,000 crore by different agencies, while a precise estimate will be available only when the details of the plan are laid out. The apex court will hear the case next on October 13.
Updated: October 06, 2020, 14:05 IST
On Monday, the Apex Court asked the Centre and the Reserve Bank of India to record the measures taken on the KV Kamath committee's report on debt restructuring and also urged the duo to consider the relevant issues raised by the real estate associations and power producers. According to the Supreme Court, the Centre's offer to waive "interest on interest" on loans up to Rs 2 crore for specified individual and MSME borrowers was "not satisfactory".
The KV Kamath panel was set up by the central bank in view of the stress inflicted by the Covid-19 pandemic across various sectors to suggest eligibility parameters for the restructuring of loans. Last month, the committee identified 26 sectors for the relief and also recommended sector-specific thresholds for these sectors.
The government argued that "there is nothing to hide" to which the Supreme Court replied, "The issue is not about placing the report on record but about implementing the report… The Centre and the RBI should make certain orders so that people know what benefit is extended."
A bench headed by justice Ashok Bhushan asked the Centre and the RBI to place before it within a week the panel's recommendations and various policy decisions and guidelines taken by it to implement their plans on loan moratorium. It also permitted them to file one consolidated response each rather than responding to every petitioner separately. It also asked various industry bodies to file their response to the government loan relief plan.
The government agreed in the court to waive compound interest on their loans up to Rs 2 crore for the six-month (March-August) moratorium period, last Saturday. However, the government argued against extending such relief to all categories of borrowers, stating the enormous burden this would put on the banks, which could even render most of them unviable.
Senior advocate V Giri, appearing for RBI, told the judges that "a large percentage of people feel that an interest on interest is hitting them very hard. There are more deliberations and recommendations to be made and they will be considered. If you feel the report is to be placed on record, we will do so".
According to Solicitor General Tushar Mehta,the Kamath committee recommendations will cover borrowers who took larger loans while the small borrowers were covered under its plan.
Senior advocate Harish Salve, appearing for banks, argued that "our accounting has been frozen as the SC has restrained us from classification of accounts as NPAs. We will need 48 hours to get back to the court on the government's proposal".
The Supreme Court asked the government to take a concrete decision after considering the interests of all classes of creditors and all the sectors of the economy. On September 3, the SC had directed banks against declaring loan accounts that were not NPAs prior to August 31. It had given a "last chance" to the government and RBI to come up with a suitable plan on the waiver of interest issue.
The apex court
V Giri
Tushar Mehta
KV Kamath committee
interest on interest
harish salve
Ashok Bhushan