Centre ready to waive interest on repayment of loans up to Rs 2 Crore for the moratorium period

To bring down the pressure on individual and MSME borrowers in relation to the interest payment during the moratorium period, the Union Government has said to the Supreme Court of India that it would waive interest on repayment of loans of up to Rs 2 crore.

According to the legal news website, LiveLaw report, the centre in an affidavit has said that it will continue the tradition of handholding the small borrowers and has waived compound interest for the period for the most vulnerable category of borrowers.

The move will provide relief to individual borrowers and medium, small and micro enterprises (MSMEs) during the COVID-19 outbreak. The Reserve Bank of India (RBI) had earlier announced a loan moratorium of six months due to the lockdown and slowdown in the economy.

It should be noted that the Supreme Court on many occasions has asked the government to waive off this interest on loan moratorium several times, but the government insisted on charging interest terming that it would affect the banks. RBI and the government have said earlier to the court that it could be extended by up to two years.

However, it has changed its position now on the basis of the recommendations of the government panel that was studying the effects of the coronavirus, COVID-19, pandemic and the lockdown on various sectors. The panel was headed by former Comptroller and Auditor General Rajiv Mehrishi.

Loans that will be covered under this waiver:

The waiver will be applicable to a number of loans like education loans, housing loans, credit card dues and auto loans, personal loans among others. The waiver on interest would apply, irrespective of whether the borrower has availed the moratorium in the categories of loans specified by the government.

The Centre also said that it would seek Parliament's permission for grants to enable the move.

Burden of Waiver

The waiver of the interest on loans to every category would amount to a burden of Rs 6 lakh crore for banks. If the banks are made to borne this burden then it would wipe out a major part of their net worth, which would raise a serious question mark on their survival.