Cost to the government should not exceed ₹5,000-7,000 crore as a result of its decision to waive off interest on the interest accrued in the case of MSME loans and personal loans up to ₹2 crore, according to a senior official of credit rating agency ICRA.

This estimate is based on the assumption that not more than 30-40 per cent of the overall loans of the banks and NBFCs will be eligible for relief, according to Anil Gupta, Vice-President, ICRA Ltd.

Further, this estimate assumes that all borrowers are given relief irrespective of whether they availed the moratorium or not.

Gupta observed that to bring in parity between borrowers who availed moratorium and those who didn’t, a notional amount of interest on interest will need to be reduced from the principal amount outstanding against the borrowers who didn’t avail moratorium.

Also, given the intent of the government to absorb the cost of the waiver, he expects the impact to be minimal on profitability of lenders.

As per the government’s decision, the borrowers (specifically those in the MSME and personal loans category up to ₹2 crore) in whose case the compounding of interest during the pandemic-related moratorium period will be waived include MSME loans, education loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professionals and consumption loans.

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