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Loan moratorium issue: Govt agrees to waive compound interest on loans up to Rs 2 crore

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New Delhi (ILNS): The Central government, in its affidavit before the Supreme Court has agreed to waive off compounded interest for loans up to Rs 2 crore during the six months loan moratorium period in the wake of Covid-19 pandemic.

In its affidavit the government has said that relief on waiver of compound interest will be for MSME loans, education loans, housing loans, consumer durable loans, credit card loans, auto loans, personal loans, consumption loans, all up to Rs 2 crores.

The UoI has also mentioned in the affidavit that the government describes small borrowers as a “vulnerable category and has decided to continue to handhold the small borrowers.”

The Centre said, if the Government were to consider waving interest on all the loan and advances to all classes and categories of borrowers corresponding to the six-month period for which the moratorium (i.e. deferment of payment of instalment) was made available under the relevant RBI circulars, the estimated amount is more than Rs 6 lakh crore. If the interest is waived on all the loans and advances, with regard to all classes and categories of borrowers, the amount to be foregone would be more than Rs 6 lakh crore. Further, if the banks were to bear this burden, it would necessarily wipe out a substantial and major part of their net worth, rendering most of the banks unviable and putting a very serious question mark on their very survival.

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The Centre submitted that the decision is taken keeping in mind, after examining the possible fiscal scenario in case of a complete/partial waiver and after gathering the material details for reaching the decision-making process, and while keeping in mind the interest of particular class of borrowers during the unprecedented period the country is facing.

The Government, therefore, has decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers. This category of borrowers, in whose case, the compounding of interest will be waived, would be MSME loans and personal loans up to Rs 2 crore of the following categories:

1- MSME loans up to Rs 2 crore

2- Education loans up to Rs 2 crore

3- Housing loans up to Rs 2 crore

4- Consumer durable loans up to Rs 2 crore

5- Credit card dues up to Rs 2 crore

6- Auto loans up to Rs 2 crore

7- Personal Loan to professionals up to Rs 2 crore

8- Consumption loans up to Rs 2 crore

In other words, any individual/entity whose loan amount is more than Rs. 2 crore will not be eligible for waiver of the compounding of interest, which shall be confined to only the above referred categories of borrowers, said the Centre in its affidavit before the Supreme Court.

The Centre has filed its reply in the petition petitions demanding waiver of interest on the suspended EMIs during moratorium period. 

A three-judge bench of Justices Ashok Bhushan, R. Subhash Reddy and M. R. Shah had given more time to the Centre and the Reserve Bank of India, place their decisions on record regarding the issue of waiver of interest on the suspended EMIs during the moratorium period.

The apex court on its previous hearing on September 3, had directed the banks to not declare those accounts as a non-performing assets (NPA) for two months which were not NPA’s as on August 31.

The court will hear the matter next on October 5.

Read the full affidavit here;

affidvit

-ILNS

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