Lawstreet Journal

RBI Warns SC of Rs 2 Trillion Blow to Banks If Interest During Moratorium Is Allowed to Be Waived

Lawstreet Journal 5 Jun 2020 9:11pm

Image courtesy: Lawstreet Journal Business RBI Warns SC of Rs 2 Trillion Blow to Banks If Interest During Moratorium Is Allowed to Be Waived

Recently the Supreme Court was warned by the Reserve Bank of India of not allowing a plea seeking waiver of interest for the six-month moratorium period on loan repayments, ending on 31st August 2020. The RBI estimated that a ‘forced’ waiver of interest will hurt banks by as much as Rs 2 lakh crore which will indeed have huge consequences for the stability of the entire financial system. 

The reply was filed by the RBI after a notice was issued by the SC seeking response for the regulator or waiver of interest dues plea on the six-month moratorium announced by the central bank. 

Similarly, on 27th March 2020, the RBI has issued a circular asking financial institutions to allow customers a moratorium on loan installments that fell between 1st March and 31st May 2020. Further, this deadline was extended for another three months until 31st August 2020.

It was argued by the RBI that a forced waiver is neither prudent nor appropriate and that the RBI had cautioned that the waiver of interest may risk the financial viability of banks, which would indeed put depositors in jeopardy. 

It was also stated by the Central Bank that the banks must remain sound and profitable to ensure the safety of depositors and the financial stability of the country. It was argued that the interest of loans is an important source of income for banks and to remain viable, lenders need to sustain reasonable interest margins. 

In a report, it was further clarified by the RBI that the… Continue Reading...

Tagged: Reserve Bank of India  
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