Relief for MSMEs: Centre waives off compound interest on loans during pandemic
In a relief to individual borrowers and medium and small industries, the Centre has agreed in the Supreme Court to waive compound interest (interest on interest) charged on loans of up to Rs 2 crores for a six-month moratorium period announced due to the COVID-19 pandemic.
It said the government will seek due authorisation from parliament for making appropriate grants in this regard and the endeavour shall be over and above the support of Rs 3.7 lakh crore to MSMEs, Rs 70,000 crore for home loans etc. already extended through the Garib Kalyan and Aatma Nirbhar packages announced by government earlier.
In an affidavit filed by Union finance ministry on behalf of the Union of India, it said that the relief to all borrowers in respect of compounding of interest during the period of moratorium would be admissible to the 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, it said.
The loans were categorised into eight categories by the government including MSME (Micro, Small and Medium Enterprises), education, housing, consumer durable, credit card dues, auto, personal, and consumption.
It further said that any individual/entity whose loan amount is more than Rs 2 crore will not be eligible for waiver of the compounding of interest.
It said in view of the cumulative circumstances, after careful consideration and weighing all possible options, the government has decided to continue the tradition of hand holding of small borrowers.
The affidavit has been filed by the Centre in response to a batch of pleas in the apex court raising issues pertaining to validity of RBI’s March 27 circular which allowed lending institutions to grant moratorium on payment of instalments of term loans falling due between March 1, 2020 and May 31 this year due to the pandemic.
The government said borrowers have understood the difference between waiver in interest on loan and deferment of payment of instalments for that loan. Therefore, a majority of the borrowers have not taken benefit of moratorium which is nothing but deferment of payments of instalments.
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