Center to waive “interest on interest” on loans up to Rs 2 crore during moratorium period

The Center told the Supreme Court on Friday that it would waive “interest on interest” on loans up to Rs. 2 crore. This will apply during the six month moratorium period. This move is likely to elicit a sigh of relief from many individual borrowers and MSMEs. It is also a departure from their previous position where the Center had estimated that the waiver of interest would affect the banks.

According to reports, the benefit will also be available to those who have paid their contributions between the months of March and August for various loans. Although permission from parliament remains to be sought for the same, the case will be considered on Monday. Apparently, the waiver will apply to loans taken out by MSMEs as well as loans for education, housing, sustainable consumption, automobile, credit card contributions, business and consumer.

Amid the COVID-19 pandemic, as businesses closed and many industries were in shock, the RBI had allowed borrowers to seek a six-month moratorium on loan repayments. But while you could enjoy the same and not have to make payments right away, banks still charged interest on the full amount. Note that according to what the Center said on Friday, the interest payment is not waived. However, there will be no interest on the interest.

On September 3, as a relief for stressed borrowers facing difficulties due to the impact of the pandemic, the highest court declared that accounts that had not been declared as non-performing assets until the 31st August of this year would not be declared NPA until later. orders. The pleadings before the Supreme Court raised questions relating to the validity of the RBI circular of March 27 which allowed lending institutions to grant a moratorium on the payment of installments of term loans maturing between March 1. 2020 and May 31 of this year due to the pandemic. Later, the moratorium period was extended until August 31.

The Center had recently told the court that waiving interest on deferred IMEs during the moratorium period would be contrary to basic finance canons and unfair to those who repay loans on schedule. RBI, however, released a scheme that provides for an extension of the moratorium of two years for certain stressed borrowers, had informed the Center of the highest jurisdiction.

(With contributions from agencies)

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Posted on: Saturday October 03, 2020 09:33 IST

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