Loan moratorium case : No Extension ; Penal interest to be waived says SC:

The Supreme Court on Tuesday 23rd March 2021 directed that there should be no charging of compound interest, interest on interest or penal interest on the installments which were due during the loan moratorium period from 1st March 2020 to extended date 31st August 2020 on any borrower, irrespective of the loan amount. If such interest has already been collected, it should be either refunded to the borrower or adjusted towards the next installments. And allowed banks to declare NPAs
The moratorium was only for the deferral of EMIs and not the waiver of interest. There were demands by the borrowers that the banks should waive off the interest amount during those six months and extend the moratorium period beyond six months. The banks refused the total waiver of interest as the cost would be huge. Thus, various trade associations, power sectors, and real estate sectors filed a pleas seeking an extension of the term loans’ moratorium period and waivers of interest for six months because of the pandemic.
The government submitted to the Supreme Court that if it allows interest waiver on all loans and advances to all borrowers for the six-month moratorium period, then the inevitable amount would be more than Rs.6 lakh crore. If the banks had to bear this burden, it would wipe out a substantial part of their net worth affecting their survival as the banks have to pay interest to depositors, pensioners and have to meet administrative expenses as well. There may be several welfare funds schemes that might be surviving on the interest earned from deposits. Thus, the RBI provided for deferred payment of instalments and not a waiver of interest.
The judgment relieved for banks and lenders with the court lifting its nearly six-month bar on them from declaring accounts of borrowers as non-performing assets (NPAs). In October last year, the apex court had stopped banks and lenders from declaring accounts of borrowers as NPAs. At the same time, the Court observed that it was not possible to order complete waiver of interest during the loan moratorium period
The categories in which the Centre and the RBI agreed to waive compound interest during the loan moratorium period are upto ₹2 crore: MSME loans, Education loans, Housing loans, Consumer durable loan Credit card dues, Automobile loans crore, Personal loans to professionals, Consumption loan.


The direction for loan more than ₹2 crore has not been given yet regarding the compound interest. According to rating company ICRA the compound interest on loan more than ₹2 crore across all the lenders is between ₹13500 crore – ₹14000 crore.
Banks have refunded interest on interest of about ₹6500 crore to the borrower less than ₹2 crore