Cabinet clears waiver of compound interest on certain loans

Our Bureau New Delhi | Updated on October 22, 2020

The Cabinet Committee on Economic Affairs (CCEA) is believed to have approved waiver of interest on interest for the Covid-stress moratorium period for certain categories of borrowers with loan amounts up to ₹2 crore.

Since the matter is pending in the Supreme Court, the government is expected to first inform the apex court and then make the matter public, according to sources. The court will hear this matter on November 2.


Total expenditure

The total expenditure on the waiver is estimated at ₹6,000 crore.

The government will pay this amount to all banks whether it is in public or private sector.

No official announcement came after Wednesday’s Cabinet meeting, but two key government sources confirmed that the issue was included in the meeting at the last minute.

At its last hearing last week, the Supreme Court asked the government to implement the scheme.

Earlier this month, the government had submitted to the court that loans up to ₹2 crore taken by individuals and Micro, Small and Medium Enterprises will be eligible for a waiver of the compound interest during the six-month moratorium period, that is, March-August 2020.

Eligible categories

The affidavit listed eight categories eligible for the waiver: MSME, education, housing, consumer durables, auto loans, credit card dues, personal loans to professionals and consumption loans, all up to ₹2 crore.

According to the government affidavit, full waiver of interest on all the loans and advances to all class and categories of borrowers for six-months period would cost ₹6-lakh crore.

“If the banks were to bear this burden, it would necessarily wipe out a substantial and major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival,” it had said.

Published on October 21, 2020

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