The scheme on the 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 the government,” a Finance Ministry official told Business Standard.
The government's decision will benefit those clearing their dues on a variety of loans between March and August.
"This category of borrowers, in whose case the compound interest will be waived, would be MSME loans and personal loans up to Rs 2 crore of the following category—MSME loans, education loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professionals and consumptions loans,” the finance ministry had said in an affidavit before the Supreme Court.
"Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest," the government said in the affidavit
The Reserve Bank of India
had allowed borrowers to seek a six-month moratorium on all loans due to the economic impact of the coronavirus crisis, but banks and finance companies charged interest on the entire amount: the interest as well as the interest liability.
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 Rs 10,000 crore.
The government is 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 installments that have been deferred for repayment by the Reserve Bank through a six-month moratorium imposed in March.