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Cannot Allow Waiver of Complete Interest & Extension of Moratorium: SC
Experts hail the move terming it as a landmark judgement that will help banks and may not have any adverse impact on the housing market which is already witnessing all-time low-interest rates on home loans
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The Supreme Court on Tuesday, March 23, said in its judgment on a batch of pleas related to the six-month loan moratorium period, that it cannot allow waiver of complete interest and extension of the moratorium. The apex court also refused to issue any directive on bringing in more classes of borrowers under the scheme.
The Reserve Bank of India (RBI) had on March 27, 2020 announced a moratorium on loan instalments due between March 1 and May 31. The moratorium period was later extended by three months till August 31, 2020.
The moratorium was intended to provide borrowers relief during the COVID-19 pandemic, enabling them to defer payments on EMIs.
The top court had in September 2020 ordered that accounts that were not non-performing assets (NPAs) as on August 31 should not be classified as NPAs until further orders.
Will It Impact Real Estate Sector?
Anuj Puri, Chairman - ANAROCK Property Consultants says the SC decision not to extend the six-month loan moratorium period given by the RBI may not have a major impact on real estate as such.
"As noted, towards the end of 2020 the overall percentage of those who availed the loan moratorium benefit was not as significant as anticipated. Moreover, continuing the loan moratorium for retail investors is not as beneficial as switching to the prevailing lowest-best home loan rates," Puri says.
Experts are of the opinion that banks have limitations in their ability to extend this benefit as ultimately, such a decision will have an overall impact on their balance sheet and profitability.
According to Puri, the last two quarters – Q4 2020 and Q1 2021 – saw robust housing sales wherein many buyers capitalized on the low home loan rates, government sops and developer discounts.
Agrees Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co, a leading law firm. "The difference between concessions (in the needed time of COVID) and complete waiver (which would have meant a bizarre free ride in a commercial and financial world) has been recognized and put to rest by the Supreme Court, in the landmark judgement," she says.
Penal interest has always been controversial from the perspective of public policy considerations. The Supreme Court judgment seems to have continued on this principle, adds Sivaramakrishnan.
Ravindra Sudhalkar, CEO at Reliance Home Finance termed it as a "balanced judgment". "Today’s decision dispels confusion for banks on NPA accounting and also provides clarity for borrowers who availed the moratorium benefit on the amount they would need to pay up to their banks for the moratorium period. The decision of not to extend the loan moratorium period or allow complete waiver of interest during the moratorium period is a balanced judgment taking into account the need to ensure the sustainability of the banking system. At the same time the decision to waive compound interest rates during moratorium will provide relief to borrowers," says Sudhalkar.