The Central Government has informed the Supreme Court that it has decided to waive "interest on interest" imposed during the 6-month moratorium, that ended on 31 August, for small ticket loans of individuals and MSMEs, according to a Times of India report.
Loans of up to Rs 2 crore will be eligible from the categories of MSME, education, housing, auto, consumer, durable loans, credit card dues, personal loans to professionals and consumption loans. The benefit will also be available to those who were clearing dues on a range of loans between March and August, the report added.
According to an affidavit cited in the report, the finance ministry has informed the apex court that the burden arising on banks from such waiver of interest on interest and compound interest, will be borne by the government.
The Supreme Court is hearing petitions by individuals and industry bodies, seeking relief on loan repayments and waiver of interest over interest in view of the adverse impact of the pandemic.
The Finance Ministry had constituted an Expert Committee in early September accessing the impact of waiver of interest and waiver of interest on interest and other related issues after the Supreme Court had ordered an interim extension of loan moratorium till 28 September, directing banks to not tag any loans as non-performing assets (NPAs) till further directions.
The apex court had also granted two weeks to the central government, Reserve Bank of India (RBI) and banks to come up with a concrete stand on their waving on interest charged on non-payment during the 6-month moratorium that ended on 31 August.
The RBI in its latest annual report had cautioned that deferment of interest payments and restructuring of loans could have negative implications on the financial health of banks unless closely monitored.
The next hearing on the case is scheduled for 5 October.