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No compound or penal interest be charged from borrowers during moratorium period, directs SC

The Supreme Court refused to extend the loan moratorium for pandemic-hit borrowers but said penal interest shouldn’t be recovered on deferred payments, except in cases of willful default. It rejected a plea for the full waiver of all interest on loans not paid during the six-month period, in a ruling on Tuesday. The court also lifted a stay it had earlier imposed on banks declaring defaulting loan accounts as nonperforming assets (NPAs). Banks cannot charge penal interest, especially when the moratorium had been announced to help those hit by the lockdown during the pandemic, ruled the three-judge bench led by Ashok Bhushan. The other members of the bench were R Subhash Reddy and MR Shah. “There shall not be any charge of interest on interest, compound interest, penal interest for the period during the moratorium and any amount already recovered under the same head, namely, interest on interest, penal interest, compound interest shall be refunded to the concerned borrowers and to be given credit, adjusted in the next instalment of the loan account,” the court said. “Interim relief granted earlier not to declare the accounts of respective borrowers as NPA stands vacated.”

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