INSUBCONTINENT EXCLUSIVE:
New Delhi: In a relief to individual borrowers and medium and small industries, the Centre has agreed in the Supreme Court to waive compound
interest (interest on interest) charged on loans of up to Rs 2 crores for a six-month moratorium period announced due to the COVID-19
pandemic.It said the government will seek due authorisation from parliament for making appropriate grants in this regard and ?the endeavour
shall be over and above the support of Rs 3.7 lakh crore to MSMEs, Rs 70,000 crore for home loans etc
finance ministry on behalf of the Union of India, it said that the relief to all borrowers in respect of compounding of interest during the
period of moratorium would be admissible to the categories specified irrespective of whether the borrowers had availed the moratorium or
not.?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 of up to Rs 2
education, housing, consumer durable, credit card dues, auto, personal, and consumption.It further said that any individual/entity whose
loan amount is more than Rs 2 crore will not be eligible for waiver of the compounding of interest.It said in view of the cumulative
circumstances, after careful consideration and weighing all possible options, the government has decided to continue the tradition of hand
pertaining to validity of RBI's March 27 circular which allowed lending institutions to grant moratorium on payment of instalments of term
loans falling due between March 1, 2020 and May 31 this year due to the pandemic.Later, the period of moratorium was extended till August
31.Earlier, in the matter, the Centre had told the top court that waiver of interest on deferred EMIs during moratorium period would be
waiving compound interest would result in very substantial and significant financial burden and it is impossible for the banks to bear the
burden without passing on the financial impact to the depositors or affecting their net worth adversely, which would not be in the larger
national economic interest.It said that the only solution under the circumstances is that ?the government bears the burden resulting from
waiver of compound interest and this court would be satisfied that government bearing this burden would naturally have an impact on several
and the consequential impact on credit ratings, the Centre said that any account becoming non-performing even due to the bank's or any other
delay, will not suffer from being labelled as NPA
protect corporate borrowers impacted by the COVID-19 crisis.It said that the word ?moratorium? is categorically defined by the RBI while
government said borrowers have understood the difference between waiver in interest on loan and deferment of payment of instalments for that
Therefore, a majority of the borrowers have not taken benefit of moratorium which is nothing but deferment of payments of
instalments.?Though it may not be possible to give the exact percentage of the borrowers who have not availed of the moratorium and have
deposited payment instalments, approximately such class would be more than 50 per cent,? it said.The Central government said that if it were
to consider waiving interest on all loans and advances to all classes and categories of borrowers for a six-month period for which the
to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable
and raising a very serious question mark over their very survival,? it said.On September 28, the Centre had informed the top court that a
decision is likely in two to three days over charging of compound interest by banks on instalments which were deferred during the moratorium
September 3, in a relief to stressed borrowers who are facing hardships due to the impact of the pandemic, the top court had said that
accounts which were not declared as non-performing assets till August 31 this year, shall not be declared NPA till further orders.
