It is not possible for banks to waive interest accrued on loans during the moratorium period, D Subbarao, former RBI Governor said in an interview to CNBC-TV18.

Echoing Uday Kotak's views earlier in the day, Subbarao said that banks had contractual obligations to both savers and borrowers.

"If banks waive that sort of interest, there will be enormous strain on them," Subbarao said.

"They earn interest from borrowers and they have got to service the deposits. If the borrowers are not to pay interest, how are the banks to service the savers? Banks are supposed to be hard-headed, whether they are hard-hearted or not is not the question.

So banks cannot be expected to privilege one side over here. They have got contractual obligations both to savers and to borrowers and you have got to balance both of them, they cannot privilege the interest of the borrowers or the interest of the savers."

He said that depositors associations must raise the concerns of savers.

“There is in fact an All India Depositors Association, I think they must jump in and argue the interest of the depositors across the country. We think of small borrowers, MSMEs etc but on the savers side as well we have very small people, people saving a few thousand rupees and you cannot expect them to support the waiver of loans to borrowers," he said.

So I think the All India Depositors Association or whatever other association there is must come into the picture and argue the case of depositors because I believe hearing out their case is very important to get a well-received judgement on this issue.”

Speaking on RBI's role in the matter, Subbarao said: “RBI is the banking regulator. Waiving of interest is a commercial decision. I do not think RBI's regulatory authority extends to overseeing a commercial decision by the bank.

Waiving of interest is a commercial decision which the banks have to take, I don’t believe the RBI can mandate the banks to do that.

If in fact that happens and the present financial stability is threatened then RBI can in fact be charged with not fulfilling its regulatory mandate of preserving financial stability. So I think the stand RBI has taken is very correct.”

First Published:Jun 4, 2020 10:12 PM IST