Loan Waiver: Govt Ready to Forgo Interest on Interest
The authorities will waive interest on interest, or chemical interest, on loans of upto two crore for select categories of borrowers to get the moratorium period announced by the Reserve Bank as a member of a Covid-19 relief bundle.
The governmentfiled a fresh affida-vit before the Supreme Court sayingeight categories of loans of upto two crore will be qualified for the interest . The categories are MSMEs
(micro, small and medium enterprises), schooling, housing, consumer durable, credit card dues, auto, personal and intake.
The Centre stated it would look for dueauthorisation from parliament for making appropriate grants within this re-gard. Relief would be accessible to borrowers in regard to compounding interest throughout the period of moratorium irrespective of whether the borrowers had chosen the moratorium or not.
Earlier, in the matter, the Centre had told the apex court that waiver of interest on deferred EMIs duringmoratorium interval would be against the fundamental canons of fund and unfair to all those whorepaid loans based on schedule.
The change in the Centre’s stance comes after the recommendations by a panel,led by former Comptroller & Auditor General of India Rajiy Mehrishi, made to look into the impact the waivingofthe compound interest would have on the market.
The Supreme Court will hear the matter on October 5.
The Centre said waiver of chemical interest would lead to a verysubstantial and important financial burden and it would be impossible for the banks to bear theburden without passing the monetary impact to the depositors or impacting their net worth . This could notbein the bigger national economic interest.
“Continued payment of interest(including interest on interest) todepos-itors is notonly one of themostessential banking activities however is a hugeresponsibility which can never be compromised as most of the depositors are bound to be little depositors and pensioners surviving on interest from their deposits,”it said. The sole solution un-
Der the circumstances was for the authorities to bear the burden resulting from the waiver of their chemical interest.