Govt to waive interest on interest on loans up to Rs2 cr under moratorium

The centre has agreed to spare borrowers with overdue loans of up to Rs2 crore from paying interest on interest under the loan moratorium offer even as it is reported to be exploring the option of compensating those borrowers who opt to pay up rather than seek moratorium.

In its affidavit filed with the Supreme Court, the Centre on Friday said that it has decided to maintain its tradition of handholding small borrowers and bear the burden arising from such waiver of “interest on interest” on the bank loans. Accordingly, there will be no "interest on interest" on loans up to Rs2 crore during the six-month moratorium period.
The waiver of compound interest will be applicable to MSME loans and personal loans up to Rs2 crore, including educational loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professionals and consumer loans.
The benefit will also accrue to those borrowers who have already cleared their loan dues during the moratorium between March and August. The finance ministry is reported to be exploring options, including cashbacks for those borrowers who have cleared their loan dues, so as to ensure equity.
The finance ministry is reported to be still working on the details of a comprehensive that would provide both concessions as well as cash incentives so that the honest borrower is not penalised.
While banks will be compensated for their loss of revenue, a rough estimate of the interest waiver scheme puts the total cost to exchequer at Rs5,000-Rs7,000 crore.
However, banks will have to bear an accounting cost on various categories of borrowers, including those who availed the moratorium for the entire six-month duration, those who have partially availed of the facility and those who did not avail of the moratorium.
The modalities of how the benefit would flow to those paying their EMIs and credit card dues during the moratorium are yet to be worked out.