Govt To Pay Interest On Interest For Loan Moratorium – Free PDF

What has happened?

• The government said on Saturday it will waive ‘Interest on interest’ on loans of up to ₹2 crore for six months through to the end of August.

Petition in SC

• A SC bench was hearing a plea challenging levy of interest on loans during the moratorium period.
• The plea demanded a waiver of interest charged by banks on the instalments that have been deferred for repayment by the RBI through a six-month moratorium imposed in March.

Govt & RBI’s view?

• The government and the RBI are of the view that writing off interest will weaken banks and affect economic conditions.
• The centre and the RBI say that a waiver of interest on deferred EMIs would be against “the basic canons of finance” andUnfair to those who repaid loans as per schedule.

SC view on Loan Moratorium

• The SC agrees on govt’s view that the EMI payment for the moratorium period can’t be waived off.
• But somewhere SC feels that interest charged on these payments are like penalizing the customers.
• The Supreme Court gave the government & RBI two more weeks
• “To come up with something concrete” to help borrowers ease their EMI burden using an optional moratorium on repayment of loans allowedduring the coronavirus crisis.

3 member committee

• The Union government on Thursday set up a three-member expert committee, led by former Comptroller and Auditor General (CAG) Rajiv Mehrishi,
• To gauge the impact of waiving interest on loans for borrowers during the six-month moratorium period.

So, what the customers will pay?

• The customers will have to pay the interest on their outstanding loan for the period for which they opted the moratorium.
• If you had a loan outstanding of Rs 1 crore at the beginning of the moratorium period and your interest rate was 8%, the interest cost for the six-month period of the moratorium would come at close to Rs 4 lakh.
• This will have to be paid.

What customers will not pay?

• Banks will not charge interest on this Rs 4 lakh interest amount from the customers and the government has proposed to pay it.
• But remember this applies only for loanupto Rs. 2 crore.

So how this 4 lakh will be paid by customers?

• Rs 4 lakh will be paid in the remaining monthly instalments.

How it’ll impact the govt?

• Waiver is expected to cost the government around Rs 6,000-7000 crore.
• But warned this will impact “pressing commitments” such as fighting the coronavirus pandemic.

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