The Supreme Court (SC) has rightly ruled out the possibility of a complete interest waiver on loans during the moratorium period, heeding arguments by banks and the government that borrowers cannot not pay when depositors need to be paid interest. However, in asking the government and RBI to re-look the issue and direct banks on how much succour they could provide their customers, it has left the window open for some relief to borrowers. Why the SC bench believes the Centre must “ensure the benefits are given to customers purposefully” is not clear. After all, it was not the Centre that announced the moratorium in the first place, it was RBI. In fact, contrary to what the bench observed, the matter should be decided entirely between banks and their customers, without any interference from either the Centre or RBI.
RBI has already empowered banks to offer a repayment holiday; so, banks are protected from any investigation or harassment. The problem with the SC opining that the Centre must decide—in consultation with RBI—is that it sets a dangerous precedent. It also takes away the autonomy of the banks, whose money it is in the first place.
While a repayment-holiday in itself is not desirable, the current circumstances, one must agree, are exceptional. In the absence of revenues for close to three months now, cash flows for thousands of businesses would have dried up, leaving promoters in a spot. However, the pulls and pressures of proprietors notwithstanding, banks are justified in asking borrowers to pay interest on the accumulated interest during the six-month repayment break. Not doing so would be patently unfair to those that have not opted for the repayment-holiday.
A recent survey of lenders, by brokerage Macquarie, revealed that the quantum of loans under moratorium has seen a fall from 25-30% at the end of May. At HDFC, for instance, the retail loan book, under moratorium, has come down to 7% as of June 15 from 21% in May, and a small portion of this 7% is new customers opting for the moratorium in the second round. On the corporate side, the approximately 40% number has been largely flat. Some of this may have been due to customers rushing to opt for a holiday without realising it would cost them; perhaps lenders too did not articulate the fact that opting for a deferred repayment would come with some additional charges. Also, it appears that while initially lenders were agreeing to a blanket three-month break, some are now approving the benefit on a monthly basis. This is certainly a better approach as it would ensure customers remain disciplined. While the drop in the amount of loans under moratorium is good news, it is only by end-August that we will get a clear picture.
