Center offers to waive interest on principal after a moratorium on individual loans of MSME up to Rs 2 crore.

EMI moratorium
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The Government has told the Supreme Court that loans up to 2 crores taken by individuals and Micro, Small, and Medium Enterprises ( MSMEs) will be entitled to waive compound interest during the six-month moratorium period, i.e. March-August 2020.

In other words, these borrowers won’t have to pay tax on tax. During the moratorium duration, interest accumulated in the case of equalized monthly installment (EMI) postponed becomes part of the principal and thus interest measured on a greater basis. This compound interest simply profits on profit.

The Union of India has agreed to uphold the practice of handholding small borrowers. The Government has therefore agreed that relief for the waiver of compound interest during the six-month moratorium period should be restricted to the most distressed group of creditors, “claimed the affidavit submitted by the Center on 2 October. Today, on October 5th, the supreme court will hear a bunch of appeals until an order is given.

While the government did not disclose the expense of this exemption, according to industry sources, it may be up to 6,000 crores and is likely to be compensated by the Center.

The affidavit contained eight types of loans for the waiver of compound interest. These include – MSME loans up to 2 crores, college loans up to 2 crores, housing loans up to 2 crores, residential sustainable loans up to 2 crores, credit cards up to 2 crores, auto loans up to 2 crores, personal loans up to 2 crores, consumer loans up to 2 crore and business loans up to 2 crores.

According to the affidavit, the complete immunity from interest on all loans and advances to all groups and types of borrowers over a six-month duration will cost a further 6-lakh crore. “If the banks were to carry this responsibility, it would inevitably wipe out a huge and considerable portion of their net worth, leaving most banks unworkable and creating a very significant question mark about their very existence,” he added.

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