Better Never Than Late

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 Better Never Than Late

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• SC, GoI, RBI: The author feels that when the Supreme Court involves itself with the matter of 'levy of interest on interest', it should not involve itself and let the government and banks decide. It is not an unusual way to do things, as seen in the 'AGR and spectrum issue' in Sept 2020. [The SC asked the NCLT to decide if spectrum could be a subject under IBC proceedings]
• Angry borrowers: The borrowers who petitioned the Court were angry against a legitimate banking practice, and hence the SC must not intervene. The GoI has already confirmed its willingness to bear the cost for a select group of borrowers, the most vulnerable ones.
• A wrong decision: Even that decision of the govt. - to waive off compounding of interest on loans upto Rs.2 cr for housing, education, consumption - is a wrong one. In India, 22% population lives below the poverty line, and per capita income is just Rs. 1.5 lakh. 
• Levy of interest on interest: This compounding of interest is not a penalty but a routine banking practice. A borrower takes up moratorium facility, doesn't pay instalments and interest, and that unpaid interest becomes a fresh loan. So interest is levied on this "fresh loan". Banks themselves have to take funds for all this from their depositors, whom banks pay interest.
• Exempting borrowers: The moment you exempt this, it is unfair for the savers, depositors and taxpayers. Basically - who bears the cost - is the only question worth asking.
• What banks do: As pure intermediaries, banks take money from depositors, lend to borrowers, by adding a maring to cover costs and make profits. By asking them to bear the extra cost, the government will make more losses (as most are public sector banks - PSBs).
• Alternative is ...: The GoI has to decide to bear the cost, then. And it has promised to do so. So now the S.C. must honour the separation of powers principle (between the legislature, judiciary and executive) and let the core question be decided by other two pillars. Why? Because it is about balancing the competing interests of different groups.
• Weak legislature: Sadly in India, the past few years have seen the executive (govt.) trample the legislature, and the judiciary enter into both executive and legislative domains. Time to give the legislature its due.

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