The Center had previously said no to waive interest.
New Delhi:
In great relief to borrowers, the government has told the Supreme Court that it is willing to waive interest on repayment of loans of up to Rs 2 million, frozen by the Reserve Bank of India (RBI) in a moratorium. six months granted. due to the coronavirus pandemic.
The interest exemption will apply to loans taken by MSMEs (Micro, Small and Medium Enterprises), for education, housing, consumer goods and auto loans and for credit card payments.
“In pandemic conditions, the only solution is for the government to bear the burden of waiving interest,” the government said in an affidavit filed on Friday, adding that it will seek permission from parliament to obtain grants to enable the measure. .
For the categories specified by the government, the interest exemption will be independent of whether the borrower has taken advantage of the moratorium.
But the Finance Ministry says that waiving interest on loans to all categories would amount to a charge of Rs. 6 million lakh rupees for banks. “If banks were to bear this burden, it would necessarily wipe out a significant portion of their net worth, rendering most banks unviable and raising a very serious question mark about their survival,” he says.
The ministry said it had decided to help a certain class of borrowers during the unprecedented situation facing the country.
The case will resume on Monday.
The RBI had granted borrowers a six-month freeze on their loan repayments, given the economic impact of the virus shutdown, which ended on August 31. The center and the RBI had previously told the court that the moratorium can be extended to up to two years.
The government’s decision marks a change from its previous decision to say no to any interest exemption as it would affect banks. The change in stance is based on the recommendation of a government panel headed by former comptroller and auditor general Rajiv Mehrishi, tasked with examining the effects of the coronavirus and the lockdown on various sectors.
Banks are against extending the loan repayment freeze, seeing it as a strain on their finances and an opportunity to withhold payments even for borrowers who have the ability to repay.
The Center had argued in previous court hearings that waiving deferred EMI interest during the moratorium period would be contrary to “basic finance royalties” and would be unfair to those who repaid loans on time. But the Supreme Court made it clear that the government needs to find a solution and not “hide behind the Reserve Bank.”
Last week, the Supreme Court ordered the center to come up with a concrete plan to help borrowers.
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