Centre to frame scheme to waive moratorium interest

Waiver may cost Centre ~5,000-7,000 crore; SC to hear case today

The Union government will formulate a scheme to waive compound interest for small borrowers during the six-month moratorium period, which may come at a cost of ~5,000-7,000 crore.

A senior finance ministry official said the government would frame a Cabinet note for the scheme after getting a go-ahead from the Supreme Court, which is scheduled to hear an ongoing case related to interest waiver on moratorium loans on Monday.

The government will then move a money Bill in Parliament’s winter session to draw additional sum from the Consolidated Fund of India this fiscal year, the official said.

“But that’s the final stage. Before it, we need definite numbers from all lenders — state-owned and private banks, and nonbanking financial companies. We will ask each lender to submit details of the compound interest dues during the moratorium period. These numbers will be reconciled, following which the budget division will be consulted and we will go to the Cabinet,” the official said.

The scheme on compound interest waiver will spell out the manner in which the government will transfer money to banks after they submit claims of the entitled borrowers. It may also delve upon the manner in which a notional value of compound interest will be calculated by banks for those borrowers who have been regularly repaying their loans during the moratorium period. “We will put a time window for banks to avail of the monetary benefits from government,” the official said.

“The banks will calculate the sum. In case of duly-paid instalments, there is no compounding of interest that takes place. So a notional amount has to be calculated and this sum will be credited to the bank account of such borrowers. Banks will credit the money into bank account of borrowers and file claim from the government,” a top state-owned bank executive said, requesting anonymity.

Anil Gupta, vice-president of ICRA, had said on Saturday the cost to the government “should not exceed ~5000-7,000 crore” assuming maximum of 30-40 per cent of overall loans in the banking system is eligible for relief. He said a notional amount of interest on interest would need to be reduced from the principal amount outstanding against the borrower who didn't avail moratorium.

According to the calculation done by the Indian Banks’ Association, a waiver of compound interest payments during the six-month loan moratorium period will cost lenders close to ~10,000 crore. “We expect the impact of the waiver move on 40-45 per cent of the borrowers and so the cost to the government may not exceed ~5,000 crore,” the banker cited above said.

The government submitted an affidavit in the SC on Friday that it was ready to bear the burden of waiving compound interest for small borrowers. Any individual or entity whose loan amount is less than ~2 crore, irrespective of whether they have availed loan repayment moratorium or not, will be eligible for waiver of the compounding of interest, it said. This includes micro, small, and medium enterprises, education, housing, consumer durable, credit card, automobile, personal, and consumption loans.

The government was responding to a plea by an Agra resident Gajendra Sharma in the Supreme Court that demanded a waiver of interest charged by banks on the instalments that have been deferred for repayment by the Reserve Bank through a six-month moratorium imposed in March. A number of industrial associations have joined the cause with the original petition demanding waiver of interest, or waiver of interest on interest on the suspended monthly instalments during the moratorium period.