Now, however, the 53-year-old optician’s $ 13,500 debt risks destabilizing India’s banks, officials warn.
That’s because a complaint he filed challenging the loan relief plan – bundled with those of other borrowers and now before the Supreme Court – could spell a $ 27 billion hit to lenders – more than half of his earnings. yearly, which could shake up the nation’s financial system. industry and regulators fear.
The battle, started from Sharma’s small shop in the northern city of Agra and now involving more than 120 lawyers, has the central bank and the government fighting to defend what was supposed to be a helping hand.
The problem, as other borrowers see it, is that they have to pay additional interest on missed repayments during the default, which they call “interest on interest.”
Borrowers, including a leading group from the real estate industry, energy utilities, shopping malls and small businesses, say the plan hits them unfairly even as many have been financially devastated by the pandemic, which banks must forgive. interest and compound interest that your payments were suspended.
Sharma, a fickle man with a thick mustache and a mop of dark hair, says the six-month reprieve, which ended on August 31, increased his debt burden due to the additional interest. He is also paying monthly installments on a business loan of $ 21,700, for which he did not seek a moratorium.
“I realized that this plan was not to relieve us, but to give us more pain,” he told Reuters at his tent, where idols of Hindu deities compete for space wearing Ray Ban and Prada sunglasses.
BANKS CAUGHT IN THE MIDDLE
After Prime Minister Narendra Modi’s government imposed the world’s strictest COVID-19 shutdown in March, Sharma saw no customers for months, though he had to keep paying his $ 2,700 in monthly recurring costs.
In this nation of 1.3 billion people, businesses say they are struggling to keep up with their loans as the lockdown has stifled business and consumer spending. The economy collapsed a record 23.9% in the April-June quarter compared to the previous year.
Now, even with the moratorium, “interest on interest will result in the liquidation of several real estate and other companies,” said Utsav Trivedi, a lawyer representing a group of fellow Sharma plaintiffs.
In a typical case, a homeowner with 15 years remaining with a loan of roughly $ 40,000 would pay an additional $ 6,000 in interest due to the moratorium, an additional 16 months, explains SBI, India’s leading state bank.
Citing Sharma’s case, the Finance Ministry last week ordered a panel to analyze the impact of withdrawing interest and the compound levy.
The Supreme Court is sympathetic to borrowers about the additional interest. During the most recent hearing on September 10, Judge Ashok Bhushan said the court was “inclined to pass an order” that the banks waive the additional levies.
Banks in India are also reeling from the pandemic, and the industry fears a major judicial setback, as the court has previously overturned government decisions in ways that affected the coal mining and telecommunications sectors.
Banks already have bad loans of more than $ 120 billion, much of it on the books of state-owned lenders, which dominate India’s banking landscape, and bad debt is set to increase in the coming months. Any deterioration in its books would force the deeply indebted government to set aside billions of dollars to recapitalize the banks.
Combined annual profits at private banks and state banks are about 3.2 trillion rupees ($ 43 billion), “so an interest exemption will be totally destabilizing,” said analyst Anil Gupta of the agency. ICRA credit rating.
The Reserve Bank of India told the court that a “no interest” moratorium would reduce the sector’s revenue by at least 2 trillion rupees ($ 27 billion), or 1% of India’s GDP. “There would be huge consequences for the stability of the banking system,” the central bank said.
The Finance Ministry told the court last month that giving up what it says is standard compound interest would be “against basic finance royalties,” adding that it was crucial to protect the more than 1.9 billion deposit accounts that generate interest income.
The central bank and the ministry did not respond to requests for comment.
Sharma, while performing her daily Hindu prayers, said she is hoping for relief.
“With faith in God, I have thought of ways to get out of this mess,” he said of his case, which will be heard next on September 28.
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