In what would be a huge relief for the borrowers but woe for the banks, the government of India told the Supreme Court on Friday that it is ready to waive compound interest accrued during the six-month moratorium (which ended on August 31) on repayment of loans up to Rs 2 crore taken by individuals and micro, small and medium enterprises (MSME).
The aim clearly is to allow more money into investors’ hands to safeguard their household and also invest in the market and help revive the ailing economy.
However, the government has specified that the loans wavier will only apply for loans taken for educational, housing, consumer goods and auto loans and for credit card dues.
“Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest,” the government has said in an affidavit. Also, the waiver on interest will be irrespective of whether the borrower has availed of the moratorium or not.
For the unaware, a moratorium simply is a temporary suspension of a bank’s activity. For example, the RBI recently allowed three months of moratorium on term-loan and credit card repayments. during this period, the banks were directed to defer the EMIs of their customers.
In addition, the affidavit, however, adds that the waiver on contractual interest on loans cannot be waived. The Finance Ministry said that “if the banks were to bear this burden, it would necessarily wipe out a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark on their survival.”
The prospect, as per the reports, has been suggested by a government panel headed by former Comptroller and Auditor General Rajiv Mehrishi.
The Centre and the RBI in another relief had also told the court that the moratorium can be extended by up to two years. The banks however are not in the favour of the same as they argue such halts in repayment affect their functioning.