Central Govt agrees to waive interest on interest of EMI Moratorium (March'20 to August'20) for Individual, MSME loans up to ₹2 Crore

Centre agrees to Waive Interest on Interest of EMI Moratorium (March'20 to August'20)for Individual, MSME Loans up to 2Crore!!!

The central Government informed that loans up to 2 crore taken by individuals, micro, small and medium enterprises (MSMEs) are eligible for waiver of compound interest charged for the 6 months EMI offered as Moratorium from March'20 to August'20.

In other words, borrowers will not have to pay interest on interest. During the period of Moratorium, interest accrued in case of EMI deferred becomes a part of principal and then interest calculated on the larger base. This compound interest is nothing but the interest on interest. 

The Reserve Bank of India had allowed borrowers to seek a six-month moratorium on all loans due to the economic impact of the coronavirus crisis, but banks and finance companies charged interest on the entire amount: the interest as well as the interest liability.

The affidavit submitted by central ministry dated, 2nd Oct said that "Government has decided to waive-off compound interest charged to the borrowers for the six-month loan moratorium". Now the apex court will hear all the pleas on 5th Oct before issuing the order.

The affidavit listed eight categories of loans for waiver of compound interest. These include MSME loans up to 2 crore, education loan, housing loan, auto loan, consumer durable loans, credit card dues, personal loans to professionals up to 2 Crore and consumption loans up to 2 crore.

According to affidavit, full waiver of interest on all the loans and advances to all classes and categories of borrowers for six-months period would cost six lakh crore. "If the banks were to bear this burden, it would necessarily wipe out  a substantial and major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their survival," it mentioned.

The government has also informed the Supreme Court that that the bearing this burden would “naturally have an impact on several other pressing commitments being faced by the nation, including meeting direct costs associated with pandemic management, addressing basic needs of the common man and mitigating the common man's problems arising out of loss of livelihood."

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