The government plans to waive compound interest on equated monthly instalments (EMIs) of loans valued at up to Rs. 2 crore, extending the benefit to all types of loans, including home mortages, and to borrowers who paid their EMIs during the duration of the moratorium, two officials aware of the plan said.
The plan to waive interest on interest during the moratorium between March 1 and August 31 is a work in progress and a formal announcement is expected before Diwali, the officials said, requesting anonymity.
“There should not be any sector-specific discrimination. It is not prudent to exempt interest on interest for personal loans only and deny the same for home loans. It will be extended to all those who have taken loans up to Rs 2 crore, which is a reasonable limit,” said one of the officials, who is in a senior position in the finance ministry.
On March 27, the Reserve Bank of India (RBI) had announced a three-month moratorium on terms loans from March 1 to enable borrowers to tide over the economic fallout of the Covid-19 pandemic. On May 22, it extended the moratorium period by another three months until August 31, 2020.
“The compound interest exemption during the moratorium period will be equally available to all borrowers – those who availed the six-month moratorium and those who continued paying [their EMIs] even during the six-month period,” the official said.
The government has committed to the Supreme Court that “interest on interest” will be waived during the six-month moratorium period for loans up to Rs 2 lakh crore, the second official said.
“As the move has significant financial implications, details are being worked out with a target to provide the relief to borrowers soon, latest by Diwali,” the official said.
The compound interest waiver will ensure that the government’s decision will not have any adverse financial impact on commercial banks, which is in line with the suggestion of an expert panel chaired by formal Comptroller and Auditor General of India, Rajiv Mehrishi. Based on the report, the government has decided to reimburse banks for their losses on this account, the official said.
The finance ministry on September 10 set up an expert committee under Mehrishi to assist the government in assessment of relief to bank borrowers. The panel was formed after concerns were raised during the proceedings of a hearing in the matter of Gajendra Sharma versus Union of India and others, where an Agra-based petitioner had sought waiver of interest during the moratorium
The other members of the committee were Ravindra H Dholakia, former member of the Monetary Policy Committee of RBI and B Sriram, former managing director of State Bank of India (SBI).