Ready to waive ‘interest on interest’ during moratorium: Centre tells SC

Compound interest accrued during the six-month moratorium on repayment of loans up to Rs two crore taken by individuals and micro, small and medium enterprises (MSME) will be waived, the Centre told the Supreme Court in an affidavit on Friday. The moratorium was announced as part of measures to mitigate economic hardships caused by the Covid-19 pandemic and the lockdown imposed to check its spread in March.

The government made the announcement in the affidavit as a bunch of petitions seeking a waiver of accrual of interest for the moratorium period are pending before the court.

The affidavit, however, said the waiver on contractual interest on loans cannot be waived as it will lead to a huge financial burden on banks estimated to be more than Rs 6 lakh crore. “Union of India has decided to continue the tradition of handholding the small borrowers. The Government has decided that the relief on waiver of compound interest during the six-month moratorium period (March 1-August 31) shall be limited to the most vulnerable category of borrowers.”

The waiver will apply to MSME/entity or individuals, who have taken below Rs 2 crore education loans, housing loans, consumer durable loans, auto loans, personal loans, professional, etc.

The Centre said the decision was taken in the interest of borrowers and the banks, which would unable to sustain this load. It had initially opposed the waiver in the court. The proposal was also opposed by the Indian Banks Association (IBA) and the State Bank of India separately represented in the matter.

Agra-based businessman Gajendra Sharma was the first to move the court seeking the waiver.

A three-judge bench headed by Justice Ashok Bhushan is expected to take up the matter on Monday and pass further orders after going through the affidavit. The bench has maintained that it is the responsibility of the Centre and Reserve Bank of India to handhold the borrowers. It has pointed out that it was the Centre’s decision to impose lockdown, shutting down businesses and establishments.

The court on September 10 asked the Centre to consider the issue taking all parameters into consideration. Earlier, with the moratorium ending on August 31, the court had said that banks will not declare loan accounts as non-performing assets (NPA) on account of non-payment.

IBA, which represents 215 banks, told the court no account shall become NPA at least for two months.

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