Government to waive interest on interest
The central government is set to waive interest on interest on loans up to Rs 2 crore for six months through to the end of August. However, it warned that this will impact pressing commitments.
In an affidavit to the Supreme Court, the government said bearing the cost of paying interest on interest would naturally have an impact on several other pressing commitments, including meeting direct costs associated with the pandemic management, addressing basic needs of the common man and mitigating the common man’s problems brought about by unemployment. It also stated that due to unprecedented conditions, the only solution is for the government to bear the burden of waiving interest.
The finance ministry, in a petition, said if chargers were waived for all categories of loans, it would lead to a Rs 6 trillion burden for banks. It said that if the banks were to bear this burden, it would necessarily wipe out a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark on their survival. As such, the finance ministry will have to seek the Parliament’s approval for additional funds to support the waiver of the compounding interest. On May 22, the Reserve Bank of India had extended the moratorium on loans till August 31. In March, it had allowed a three-month moratorium from paying EMIs and on payment of all term loans due between March 1 and May 31. The top court, on September 28, had adjourned the loan moratorium case to October 5. It had granted more time to the government, the RBI and banks to work together and take a stand on waiving interest.
In June, the Center had announced relief by reducing late fee and interest for delayed filings and payment of taxes by the dealers who have a turnover of less than Rs 5 crore. Tax experts had pointed out that many companies were unable to comply with the regulations and burdening them with interest and penalties was a double whammy for them. The government’s move to bear the burden will also include borrowers who have not availed of the moratorium. Bankers have already said that the waiver will apply to those who have not availed of the moratorium and have defaulted on repayments during the months April-September.