Government waives compound interest during moratorium on some loans: report

The government has informed the Supreme Court that it has decided to waive “interest” on loans of up to Rs.2 billion during the six-month moratorium period Times of India reported on Saturday.

The government’s decision will benefit those who pay their dues on a variety of loans between March and August. “This category of compound interest waiver category of borrowers would be MSME loans and personal loans up to Rs.2 billion in the following category: MSME loans, education loans, home purchase loans, permanent consumer loans, credit card fees, auto loans, business loans and personal loans Consumer loans, ”said the Treasury Department on Friday in an affidavit to the Supreme Court Times of India.

The Reserve Bank of India had allowed borrowers to request a six-month moratorium on all loans because of the economic impact of the coronavirus crisis, but banks and financial firms were charging interest on the entire amount: the interest as well as the interest payable.

“Under pandemic conditions, the only solution is for the government to shoulder the burden of foregoing interest,” the government said in the affidavit, adding that it would seek parliamentary approval for grants to make the move possible, according to NDTV.


“The government bearing this burden would of course have implications for several other urgent obligations the nation faces, including covering direct costs related to pandemic management,” the affidavit added.

She did not estimate the impact of the move on the banking sector, but said that if she contemplated a complete waiver of interest payments over a six-month period, as some had sought, it would hit the sector Rs 6 trillion (US $ 82 billion) Dollars). , according to Reuters.

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In a plea before the Supreme Court, Agra optician Gajendra Sharma called for banks to waive interest on the installments postponed by the Reserve Bank of India through a moratorium. With the original petition, industry associations joined the cause and demanded the waiver of interest or interest on the suspended monthly payments.

A committee set up by the government has made its recommendations on the effects of interest waiver and interest on the economy and financial stability. The Indian Banks’ Association (IBA) told the committee that in lieu of a waiver, it could potentially ask the government to provide relief to borrowers.

Sharma applauded the decision. “I’m happy that millions of people won today,” he told Reuters.

The Supreme Court will reopen the case on Monday.

(With inputs from Reuters.)

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