In a huge relief for individual and MSMEs borrowers, the central government on Friday told the Supreme Co urt that it will be waiving interest on the repayment of loans of up to Rs 2 crore, frozen by the RBI in a six-month moratorium granted because of the COVID-19 pandemic.
It said the benefit will remain available to those who were clearing their loan dues between March and August.
“Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest,” the government has said in an affidavit submitted on Friday.
“This category of borrowers, in whose case the compound interest will be waived, would be MSME loans and personal loans up to Rs 2 crore of the following category—MSME loans, education loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professionals and consumptions loans,” a Times of India report quoted the Finance Ministry as stating.
The interest waiver will apply for loans taken by MSMEs (Micro, Small and Medium Enterprises) for educational, housing, consumer goods and auto loans and for credit card dues.
The RBI had announced a moratorium on repayment of debt for six months to help businesses and individuals tide over the financial problems on account of disruption in normal business activities.
But banks and housing finance companies were charging interest on the entire amount — the principal as well as the interest liability — which translated into the repayment period extending by over six months, the Times of India reported. The liability was higher for recent loans as the interest component is typically front-loaded.
On Friday the finance ministry told court that had decided to help a certain class of borrowers struggling due to the pandemic situation. The case will be taken up on Monday again.