New Delhi:
In a huge reprieve for borrowers, the government told the Supreme Court it would waive “interest on interest” on loans up to Rs 2 crore during the six-month moratorium due to the coronavirus pandemic.
The interest exemption will apply to loans taken out by MSMEs (micro, small and medium enterprises) and loans for education, housing, sustainable consumption, automobile, credit card fees, professionals and consumers.
“In pandemic conditions, the only solution is for the government to shoulder the burden of waiving interest,” the center said in its affidavit submitted Friday, adding that it would seek permission from Parliament.
The Center had previously said no to the interest waiver, saying it would affect banks, but apparently changed its position after a recommendation from a government committee set up after the Supreme Court asked the center to help borrowers .
The court had asked the Center to develop a concrete plan to help borrowers. The case will be examined on Monday.
The Affidavit from the Department of Finance says:
- The above relief must be available for these categories whether or not the borrower has made use of the moratorium.
- if interest on loans to all categories were waived during the moratorium period, the amount would be Rs. 6 lakh crore and this would wipe out a large part of the banks’ net worth
- Bearing in mind the interest of certain categories of borrowers for decisions to help them
- Anyone with a loan greater than 2 crore will not be eligible for compound interest waiver
