Centre to waive compound interest on loans up to Rs 2 crore for 6 months

The Union government has decided to side with small borrowers by pledging to waive compound interest (interest on interest) on loans of up to Rs 2 crore for a six-month moratorium period announced due to coronavirus.

This is good news for individual borrowers and medium and small industries, which have been hit hard by the pandemic.

The government said in the Supreme Court on Saturday that it will seek parliament nod for making appropriate changes in this regard. The benefits thus passed on to borrowers will be above the Rs 3.7 lakh crore to MSMEs, Rs 70,000 crore for home loans etc. already declared under the Garib Kalyan and Aatma Nirbhar packages announced by government earlier.

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The relief to all borrowers in respect of compounding of interest during the period of moratorium would be admissible to categories specified irrespective of whether the borrowers had availed the moratorium or not.

“The government, therefore, has decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers. This category of borrowers, in whose case, the compounding of interest will be waived, would be MSME loans and personal loans of up to Rs 2 crore,” an affidavit filed by the Centre in Supreme Court said.

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The affidavit was filed in response to pleas filed in the apex court on validity of RBI’s March 27 circular which allowed lending institutions to grant moratorium on payment of instalments of term loans for the period March 1, 2020 to May 31, 2020 due to Covid-19. Later, the period of moratorium was extended till August 31.

The Centre has shown its reluctance in extending the moratorium benefits further when it stated: “The government has decided to bear the burden resulting from waiver of compound interest and this court would be satisfied that government bearing this burden would naturally have an impact on several other pressing commitments being faced by the nation.”