Waiving interest for all during moratorium not viable: Centre

Waiving interest for all during moratorium not viable: Centre

TIMES NEWS NETWORK

New Delhi:  09.12.2020

The Centre on Tuesday told the Supreme Court that waiver of interest during the moratorium period for all borrowers would not be in the larger national economic interest as it would be not viable and may trigger collapse of the entire banking system.

Solicitor General Tushar Mehta told a bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah that waiver of interest on all loans for the moratorium period would cause loss of more than Rs 6 lakh crore to banks and financial institutions.

“If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their survival. This was one of the main reasons why waiver of interest was not even contemplated and only payment of instalments was deferred,” the Centre said.

Explaining the adverse impact on the financial health of the banks, the government contended that waiver of six months’ interest would completely wipe out over half of the net worth of SBI, the country’s largest bank.

The Centre said it was even impossible for banks to bear the burden resulting from waiver of compound interest without passing this on to the depositors or thus affecting their net worth adversely.

“The only solution, under the circumstances, was that the government bear the burden resulting from waiver of compound interest to the defined category of borrowers. This Hon‘ble court would be satisfied that the government bearing this burden would naturally have an impact on several other pressing commitments being faced by the nation,” the Centre said.