Few days back when the Reserve Bank of India announced its bi-monthly monetary policy, Governor Shaktikanta Das emphatically acknowledged the dire state that the Indian economy in. Besides slashing the repo rate, a key announcement was the extension of the moratorium on term loans to August 31 — a second consecutive extension after the initial three months moratorium announced on March 27. The rationale, one would think, behind the decision was likely to provide relief to the stressed borrowers whose income channels have been hampered due to a national lockdown in place for over two months now. The moratorium provides people with the option to defer loan repayments for the time being but allows interest liabilities to accrue for the said period. The six-month moratorium adds to the monthly instalments owing to no discount on interests. In essence, even if a borrower does not pay EMI for the said moratorium period, interest for the same still has to be paid. The apparent flaw in the said decision makes us revisit the rationale under which RBI decided to grant moratorium in the first place. In principle, RBI's moratorium simply provides flexibility for repayments of loans owing to the adversity that has struck us all. Not compelled to pay EMIs for six months has been counted as a relief here simply because borrowers can breathe a temporary sigh of relief that they will not be enlisted as a defaulter or their accounts would not feature under NPA. While showing concern over the prevailing tough phase, the relief expected by RBI has not been provided as such. At best, RBI has allowed borrowers to make another term loan out of the interest accrued besides the option to pay this additional interest in one go.
Yesterday, the Supreme Court issued notice to RBI and the Centre over a petition demanding loan interest waiver during the moratorium. The petitioner asserts that no interest should be charged at all during the moratorium phase. Examining the situation, it would be important to take note of how the plea for interest waiver during the moratorium phase is not unfounded. The pandemic and the ensuing lockdown is a natural obstruction of business as usual. It can well be treated at par with a natural calamity that renders the borrowers incapable of repaying loans in the affected period. It is not a case of notoriety wherein the borrower is trying to evade his debt. It is not a case of wilful default. Covid-19 has affected all borrowers. With businesses interrupted, those unable to generate income, which they would have otherwise, should not have to bear the burden of additional EMIs or interest because of a calamity. It is not their fault that the pandemic brought the entire world to a halt. Losses that lenders would have to bear due to the interest waiver during moratorium appears meagre when weighted against the burden that has been passed on to the stressed borrowers. It is a calamity for everyone. While lenders will have to bear a loss of interest, borrowers are bearing the lack of income. The purpose of a moratorium appears hollow when the burden invariably appears to be on borrowers, one way or another. The demand for interest-waiver during moratorium is not a routine affair unlike farm loan waivers or wilful defaulters that the country has been marred with. These are grim times and unprecedented measures have been necessitated in all aspects. Interest accumulation during a moratorium in the prevailing hour of crisis hurts the average borrower. From the perspective of rationality, RBI's interest-laden moratorium falls short of the relief it is capable of providing to borrowers, especially in this situation of exigency.