The Central government has told Supreme Court(SC) of India in an affidavit, that compounded interest for loans of upto Rs.2 crore will be waived off, which were frozen by the Reserve Bank of India(RBI) in a six month moratorium granted due to the coronavirus pandemic. Further relief that can be granted to several individuals and companies is to reconsider credit rating downgrades. The Central government is working with the Securities and Exchange Board of India(SEBI) on the same.
The loan waiver will be applicable for micro, small and medium enterprises(MSME), educational, housing, consumer goods, auto loans and credit card users.
The affidavit given by the government states, “Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest.”
On May 22nd, the RBI had extended moratorium on term loans till August 31st amidst the coronavirus pandemic and subsequent lockdown. In March, RBI had allowed a three-month moratorium on paying EMIs and payment of all term loans due between March 1st and May 31st.
The finance ministry will have to seek the Parliament’s approval in the Winter Session for additional funds to support the waiver of the compounding interest. The loan waiver will amount to a burden of Rs.6 lakh crore for banks. The government is likely to compensate banks for such interest waiver.
Waiving off interest for all categories of borrowers would result in a very substantial financial burden on several categories of banks, which would be impossible for the Centre to withstand the burden. Which is why the government has considered only certain vulnerable category of borrowers.