The government has told the Supreme Court that it is ready to waive interest on the repayment of loans of up to Rs. 2 crore, frozen by the Reserve Bank of India (RBI) in a six-month moratorium granted because of the coronavirus pandemic. The interest waiver will apply for loans taken by MSMEs (Micro, Small and Medium Enterprises), for educational, housing, consumer goods and auto loans and for credit card dues.
In an affidavit to the Supreme Court, the government said that due to unprecedented conditions “the only solution is for the government to bear the burden of waiving of interest” and that it will seek the Parliament’s approval for the decision taken. The move will benefit thousands of small borrowers and will include those who have cleared their dues. The compound interest will be scrapped for loans taken out for education, housing, credit-card dues, among others, the finance ministry said in the affidavit.
The Reserve Bank of India (RBI) had on 22 May extended moratorium on term loans till 31 August amid the nationwide lockdown due to covid-19. In March, it had allowed a three-month moratorium from paying EMIs and on payment of all term loans due between 1 March and 31 May. The government has said if charges are waived off for all categories of loans, it would lead to a Rs.6 trillion burden for banks. “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.”