Ready to waive 'interest on interest' during moratorium: Centre to Supreme Court

New Delhi: The Centre has said that it will waive compound interest on personal and small loans of up to Rs. 2 crores for the six-month loan moratorium period introduced after the novel coronavirus. In its affidavit filed before the Supreme Court, the Centre said that compounded interest will be waived off for the "most vulnerable class of borrowers."

Loans such as MSME (Micro, Small and Medium Enterprises) loans, education loans, housing loans, and personal loans, among others, up to the amount of Rs 2 crore, will be waived, it said.

Meanwhile, the Centre has reiterated that waiver of all interest on borrowings for the period of moratorium is "neither agreeable nor practical" since this would burden the banks with an estimated amount of Rs. 6 lakh crore.

In an affidavit to the Supreme Court, the government said that due to unprecedented conditions "the only solution is for the government to bear the burden of waiving of interest" and that it will seek the Parliament's approval for the decision taken. It said this will be in keeping with the government's tradition of "handholding small borrowers."

In its affidavit, the Centre said that if the banks were to bear this burden, it would "necessarily wipe out a substantial and a major part of their net worth, rendering most of the Banks unviable."

The burden of waiver of compounded interest for a specific class of borrowers would be borne by the government as the only viable solution, the affidavit says.

On the issue of downgrading of credit rating - a concern that was raised by several petitioners during the course of the hearing before the Court - the Centre has said that while a circular on this issue was issued by the SEBI earlier, in case follow-up decisions need to be taken, the government will engage with the SEBI to take a humane and holistic approach.

The Supreme Court is scheduled to hear the case next on October 5.

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