The newly appointed CII President Uday Kotak on Thursday backed the Reserve Bank of India’s stance on interest during loan moratorium saying there cannot be an unequal game wherein banks pay the depositors but do not earn interest on loans.
Kotak, who is also the Executive Vice-chairman and MD of Kotak Mahindra Bank, made the statement at his first press conference as CII president. He was responding to a question on the ongoing case in the Supreme Court on waiver of interest during the moratorium period.
He said, “…banks are intermediaries between depositors and borrowers. So, we (cannot) have a situation where borrowers get moratorium, banks have an obligation to serve depositors both on principal plus interest. Therefore, we cannot have a one-sided contract where we allow moratoriums on interest to the borrowing side.”
Kotak said that people asking for moratorium on interest also need to keep in mind the interest of depositors.
He further added that “it cannot be an unequal game do not think about saying, moratorium on what I borrow, but I must get full interest on deposits.”
“If the banks have to serve borrowers, they have a bigger duty to serve depositors. Depositor is the core of the financial system. The trust and confidence of the depositor must be nurtured and protected because that is the foundation of a stable financial system,” Kotak said.
The Indian financial system has always protected the depositor’s interest which is the core basis and intent of the Banking Regulation Act, he stressed.
Kotak’s comment came on a day when the Supreme Court criticised RBI for not waiving off the interest on the moratoriums.
The Apex Court is currently looking into a petition which has challenged the directive of the Reserve Bank under which interest will accrue during the three month-moratorium allowed by the central bank on repayment of loans by borrowers.
In its submission to the Supreme Court, the RBI said that the benefit and intention of the moratorium given to the borrowers facing the heat of coronavirus were to provide a brief interlude in payment pressures and not to waive any payment obligation of the borrowers.
“Permitting a moratorium, but offering no relief through interest, is more detrimental,” the top court told the banking regulator on Thursday.