On Friday, the finance ministry told the Supreme Court that it would waive the ‘interest on interest’ for loans up to Rs. 2 crore. This will be applied during the six month moratorium period. The move is likely to evoke a sigh of relief from many individual and MSME borrowers. It is also a deviation from their earlier stance where the Centre had opined that waiving interests would affect banks.
According to reports, the benefit will also be available to those who were clearing their dues between the months of March and August for a variety of loans. While the parliament’s permission remains to be sought for the same, the case will be taken up on Monday. Reportedly, the waiver will apply for loans taken by MSMEs as well as educational, housing, consumer durable, auto, credit card dues, professional and consumption loans.
Amid the COVID-19 pandemic, as businesses closed their doors and many industries were left reeling, the RBI had allowed borrowers to seek a six-month moratorium when it came to loan repayment. But while you could avail of the same and not have to make payments immediately, banks were still charging interest on the entire amount. Note that as per what the Centre has said on Friday, the interest payment is not being nullified. There will however be no interest charged on interest.
On September 3, in relief to stressed borrowers who are facing hardship due to the impact of a 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. The pleas in the apex court have raised issues pertaining to the validity of RBI’s March 27 circular which allowed lending institutions to grant a 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 the moratorium was extended until August 31.
The Centre had recently told the court that waiver of interest on deferred EMIs during moratorium period would be against the basic canons of finance and unfair to those who repaid loans as per schedule. RBI has, however, come out with a scheme which provides for the extension of the moratorium for two years to certain stressed borrowers, the Centre had informed the top court.