India Supreme Court dismisses pleas for loan moratorium extension

India's Supreme Court dismissed pleas for an extension of the loan moratorium and a complete waiver of interest but ordered a waiver of compound interest on loans for all borrowers during moratorium between March 2020 and August 2020.

The moratorium, announced by the Reserve Bank of India in March 2020 and later extended to Aug. 31 of the same year, was aimed at providing temporary relief to borrowers affected by the coronavirus pandemic, but they were still required to pay the principal amount, interest and interest on the deferred amounts for the period, referred to as interest-on-interest.

In its March 23 ruling, the court also ordered banks to refund, or adjust in next installments of loans, any amount that was recovered by way of compound interest, or interest on interest, for the six-month moratorium. The Indian government already refunded compound interest to all borrowers whose loans were below 20 million rupees following an earlier Supreme Court order.

The court said there is no rationale in limiting the waiver on compound interest during the moratorium to loans up to 20 million rupees.

"There is no justification shown to restrict the relief of not charging interest on interest with respect to the loans up to [20 million rupees] only and that too restricted to the aforesaid categories. What are the basis to restrict it to [20 million rupees] are not forthcoming. Therefore, as such, there is no rational to restrict such relief with respect to loans up to [20 million rupees] only," the court ruled.

As of March 22, US$1 was equivalent to 72.36 Indian rupees.