Over 90 per cent of loan accounts in the system and 40-50 per cent of loans by value will benefit from the Centre’s promise of interest compounding relief for the six-month moratorium extended to mitigate the Covid effects.
The key beneficiaries will be small manufacturing/processing units, trading outfits and those who have taken home loans, charged interest in the 6-12 per cent range.
In an affidavit filed in the Supreme Court, the Centre said it will bear the cost of the waiver. It, however, capped the relief to loans up to ₹2 crore and limited its own outgo to ₹6,000 crore. This is assuming that all borrowers are offered the relief — whether they opted for the moratorium or not.
SC verdict on Monday
The final contours of the waiver will be known after the Supreme Court’s verdict on October 5.
Data suggest that most retail loans such as for housing, consumer durables, vehicle, education, personal and credit card fall within the ₹2-crore threshold.
Besides these categories, the Centre’s affidavit lists loans for MSMEs and professionals as eligible for the waiver.
According to RBI data (interest rate and credit limit-wise loans) as of March 2020, over 75 per cent of loans up to ₹2 crore are charged 6-12 per cent interest rates. Hence, nearly half the ₹6,000-crore waiver of interest on interest will pertain to such loans.
The other segment that will benefit are loans charged over 20 per cent, constituting 15-18 per cent of the waiver.
Personal loans and credit cards will benefit the most in the over 20 per cent interest rate category. These loans generally fall in the up-to-₹2-crore category, too.
About 50 per cent of loans charged 6-12 per cent interest rate pertain to public sector banks (mostly home loans), while private banks hold the lion’s share in loans such as credit cards carrying interest rate of over 20 per cent.