Gajendra Sharma, 53, an optician, poses inside his eyeglass shop in Agra.
Agra:
When business evaporated at Gajendra Sharma’s eyewear store a few miles from the Taj Mahal in Agra during the strict COVID-19 shutdown, he was relieved to learn of a pandemic debt moratorium that would give him a break on his home loan. .
Now, however, the 53-year-old optician’s $ 13,500 debt risks are destabilizing 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 Agra and now involving more than 120 lawyers, has the central bank and the government fighting to defend what was supposed to be a friendly hand.
The problem, as other borrowers see it, is that they must 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, utilities, shopping malls and small businesses – says the plan hits them unfairly even as many have been financially devastated by the pandemic, that banks should forgive interest and the compound interest that accrued while your payments were suspended.
Sharma says the six-month suspension, which ended Aug. 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 store, where idols of deities compete for space with Ray Ban and Prada sunglasses displays.
After the government imposed the world’s strictest COVID-19 shutdown in March, Sharma saw no customers for months, though she had to keep paying her $ 2,700 in monthly recurring costs.
Businesses say they are struggling to keep up with their loans as the closure 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 Sharma’s fellow plaintiffs.
In a typical case, a homeowner with 15 years remaining with a loan of about $ 40,000 would pay an additional $ 6,000 in interest due to the default, an additional 16 months, SBI explains.
Citing the Sharma case, the Finance Ministry last week ordered a panel to analyze the impact of withdrawing interest and compound tax. 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 are also recovering from the pandemic, and the industry fears a major judicial setback as the court has overturned government decisions in ways that affected sectors such as coal mining and telecommunications.
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.
“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 they generate. interest income.
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