Govt Rules Out Across-The-Board Interest Waiver On Loans During Moratorium

On Tuesday, the central government told the Supreme Court that any across the board waiver of interest on bank loans under the moratorium period has to be ruled out as it would be undesirable in the current economic situation.

The reply comes a day after the official data showed that GDP (gross domestic product) for the April-June period contracted by 23.9 percent.

"Considering the fact that the time limit for continuance of the present economic issues is uncertain, as a policy it is undesirable to either give any 'one-size fit all' solutions; nor would it be desirable to provide for a static relief formula," the finance ministry said.

"Such reliefs are given depending upon the availability of resources and without compromising the financial stability of the banking sector, and are always subject to changes keeping in mind the evolving dynamic situation at various stages," it added.

The ministry also added that an "ex facto" change in terms and conditions in favour of those who have opted for the moratorium rather than those who made efforts to repay their debt amid the pandemic will be unfair to those who chose not to avail the benefits.

"A waiver of the interest on interest during moratorium would also be against the basic canons of finance," it said.

The ministry added that the revival of stressed borrowers should involve a restructuring of their loans within the RBI framework rather than hinge on extending the moratorium.

The reply comes after the Supreme Court, last week, had sought the government's stand on waiving interest on loan repayments during the moratorium, saying it "cannot hide" behind the RBI.

The RBI had earlier informed the apex court that an interest waiver during the moratorium on repayments of term loans cannot be done as such a move will put the banks' financial health and stability at risk.

The 6-month period, wherein RBI had allowed financial institutions and banks to offer moratorium to its individual and corporate borrowers, came to an end on 31 August.