Waiver of interest on all loans to cost Rs 6 lakh crore, Centre tells SC

The Union government on Tuesday maintained before the Supreme Court any waiver of interest on all the category of loans and advances given to borrowers during the six-month moratorium period, would mean forgoing an estimated over Rs 6 lakh crore.

“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 very survival. This was one of the main reasons why a waiver of interest was not even contemplated and only payment of instalments was deferred,” Solicitor General Tushar Mehta submitted before a bench presided over by Justice Ashok Bhushan.

The government claimed, in case of State Bank of India alone, waiver of six months' interest would completely wipe out over half of the bank's net worth which has accumulated over nearly 65 years of its existence.

"It submitted that it is impossible for banks to bear the burden resulting from waiver of compound interest without passing this burden on to the depositors or affecting their net worth adversely, which would not be in the larger national economic interest," he said.

Mehta said that for every loan account, there are about 8.5 deposit accounts in the Indian banking system.

The SBI claimed that interest amount from borrowers during six months moratorium worked out to be around Rs 88,078 crore whereas the interest payable to the depositors during the said period works out to be around Rs 75,157 crore.

During the hearing, the court said it would not pass any order that will risk the economy going “haywire.”

The Centre has subsidised compound interest for all loans up to Rs 2 crore.

The court was hearing a batch of petitions by various industry bodies, such as Association of Power Producers, various chapters of Confederation of Real Estate Developers Association of India and Shopping Centres Association of India etc, for relief in repaying loans in the wake of coronavirus pandemic. The hearing, which remained inconclusive, would continue on Wednesday.