New Delhi: The Union Finance Ministry on Friday informed the Supreme Court that it is ready to waive off the compound interest for MSME and individual borrowers, who have taken loan up to Rs 2 crore, for the 6 months moratorium period.
In its affidavit, the government said that it has decided to "continue the tradition of handholding the small borrowers". Interest on interest on MSME loans, Education Loans, Housing loans, Consumer durable loans, credit card dues, auto loans, personal loans to professionals, and consumption loans are eligible to be waived off. However, all these loans must not amount to more than Rs 2 crore.
The response has come on a petition which sought waiver of interest on interest on loans during the moratorium period announced by the RBI and the top court asking the Centre to clarify its stand.
During the hearings of the case, the government had opposed the plea saying that it will lead to a financial burden on the banks.
"If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival. This was one of the main reasons why waiver of interest was not even contemplated and only payment of installments was deferred," explained the Centre.
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Citing the example of SBI, the Centre said that waiver of six months' interests would wipe out "over half of the bank's net worth which has accumulated over nearly 65 years of its existence."
Keeping the concerns in mind and knowing that it would not be possible for banks to bear the burden without passing it onto the depositors, the government said it has decided to bear the burden which can have an impact on meeting direct costs associated with pandemic management, fulfilling basic needs of the common man, etc.
However, only after the top court hears the case, it will decide if the Centre's proposal will be accepted.
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