New Delhi: The government should not prioritise economics over health, the Supreme Court said Thursday as it expressed reservations over the Reserve Bank of India (RBI)’s response to a plea questioning its circular that allowed banks to charge interest on term loan repayment during the moratorium period enforced due to the Covid-19 lockdown.
In an affidavit Wednesday, the RBI had said it was against a forced waiver of interest by banks as the same would affect the financial health of the banks and jeopardise the interests of depositors.
A three-judge bench led by Justice Ashok Bhushan said, “Economic aspect cannot be higher than the health of the people.”
The bench, with Justices S.K. Kaul and M.R. Shah as part, was hearing the PIL filed by Agra-based Gajendra Sharma via video-conferencing. The oral observations were made when the petitioner’s lawyer, senior advocate Rajiv Dutta, argued against the RBI stand.
However, on Solicitor General Tushar Mehta’s submission that he would like to file a consolidated response on behalf of the Union Ministry of Finance and the RBI, the court posted the matter for further hearing on 12 June.
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Cat is out of the bag, RBI want banks to earn, says plea
The RBI’s 27 March circular allowing banks to grant a moratorium to borrowers on payment of installments for three months did not serve “economic justice”, said Dutta. According to the petitioner, the circular didn’t offer any relief to the consumers as it allowed interest on the loan amount to accrue. A subsequent RBI order on 22 May raised the moratorium period to six months.
In his petition, Sharma said he was personally aggrieved by the levy of interest by the banks.
“The cat is out of the bag. They (RBI) are saying profitability of bank is prime,” Dutta told the bench, seeking its permission to quote an earlier Supreme Court order in an Air India case. The court had said that the middle-row of the national carrier should preferably be kept vacant in non-scheduled international rescue flights operated to bring back stranded Indians amid the lockdown.
However, the court had allowed the flights with middle-seat occupied till 6 June.
Dutta said the government cannot be allowed to let banks earn while the rest of the country “goes down under”. “I want to file a rejoinder,” he submitted, which the court allowed.
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Clarify two issues: SC to government
As the court gave Mehta time until 12 June to file a comprehensive response, it asked him to clarify two issues before it. “We want you to give your stand on two issues – one, no interest during moratorium, and second, on the issue of levying no interest on the interest,” Justice Bhushan told Mehta.
The RBI circular was “detrimental” to a borrower, Justice Shah said. “While on one end you are granting moratorium, but on the other nothing (no relief) on interest. This is more detrimental,” he said. Justice Kaul said the government must consider the petitioner’s case in view of the current situation. “These are not normal times,” he added.
At the outset, the bench took strong exception to the RBI affidavit getting reported in the media before the hearing. Dutta said it was a way to sensationalise the matter, though he didn’t directly accuse the government or RBI for it. The RBI counsel wanted the court to issue notice, but the bench left it with a warning that it should not be repeated.
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Banks must remain safe. They should not fall like nine pins. If that happens, the entire economy will collapse – and people at large will be at the receiving end. We are seeing several populist measures using the Covid-19. Tenants need not pay rent – if tenants do not pay rent, will the govt stop collecting tax? – will the banks stop collecting the EMIs? – will the debt of the owners will be waived? Retrospective Taxation upheld by the Judiciary still scares the investors. If borrowers are encouraged to abstain from their obligation to pay interests, will it not instigate them to seek such waivers in future under one pretext or the other? If Banks fails, what happens to the fate of the depositors and their hard earned savings? Or is it the case that let them go to hell?