Limited relief: Hindu editorial on pandemic borrower crisis

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The Supreme Court ruling on a batch of petitions requesting the waiver of all interest during the pandemic-specific moratorium period, the waiver of compound interest for the period for all borrowers without distinction, and the extension of the moratorium period itself is a fair verdict. The Court sought to limit the scope of its legal intervention to the question of whether laws were broken and whether actions that the banks might have taken under the political leadership of the government and the central bank were likely to violate the rights of individuals. applicants. Observing that “the wisdom and expediency of economic policy do not generally lend themselves to judicial review,” the judiciary dismissed all but one of the petitioners’ appeals: he held that the government’s decision to limit the waiver of interest compounded on loans of less than ₹ 2 crore was “arbitrary and discriminatory” and ordered repayment of all compound interest received during the moratorium period. The Court rightly pointed out the absurdity of charging compound interest on any class of loans since, by its very nature, it was criminal interest intended to impose a cost in the event of willful or willful default. , while the decision of a borrower to defer the repayment of the deposit by taking advantage of the moratorium can in no case be considered as a deliberate default. This part of the decision would surely be a welcome relief for borrowers of all loan categories and sizes, while adding a relatively lower burden – estimated at around ₹ 7,500 crore – on lenders (or the Center, if the government decides to pay the bill and save the banks the cost).

On the other hand, the court appears to have taken a literal position on whether the provisions of the national disaster management law have been violated by the authorities’ response to the economic fallout from the pandemic, which it has brought about. recognized as a disaster due to “biological emergencies”. While the arguments of the Center and the Reserve Bank of India that any attempt to extend the moratorium and / or expand the waiver to include regular interest would undermine the overall stability of the financial system are undeniably relevant, the fact that the pandemic turned out to be an unprecedented disaster in terms of the health and economic costs that it imposed on all strata of society and the economy should have prompted a more holistic and broad budget response from the part of the government. Large swathes of formal and informal small businesses as well as low-income households are grappling with debts that are likely to be difficult to repay in the absence of a direct credit support mechanism. So, notwithstanding the court ruling, it is incumbent on policymakers to urgently propose measures to help alleviate this crisis before direct lenders are inundated with more defaults.

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