Is it true that the government is planning to waive off interest on loans during the moratorium period?

We will have to wait for the court verdict which is scheduled for hearing on October 05. As of now, the Centre has told the Supreme Court that it would waive interest on the repayment of loans of up to Rs.2 crore, giving a huge relief to MSMEs.

The government clarified that this waiver will be applicable to a number of loans like education loans, housing loans, credit card dues and auto loans. The government will also seek Parliament approval and clarify on the process for the same.

The waiver on interest would apply, irrespective of whether the borrower has availed of the moratorium or not. The total cost to the banking system as a result of this move would be Rs.6 trillion and the government needs to still work out the funding modalities.

The paradox is that if the banks were asked to bear this burden then most of the banks would see their net worth entirely wiped out and hence the government may have to intervene and get involved in the entire process.

The entire controversy has come about because banks and finance companies were charging interest on the principal as well as interest liability. That actually made the entire concept of the moratorium meaningless as borrowers ended up with higher burden.

Earlier, the centre had left the waiver issue to the RBI and to the banks but changed its mind after the recommendation of a panel headed by former CAG, Rajiv Mehrishi, which was appointed to study the impact of the Coronavirus and the lockdown on various sectors.

Banks are worried that such a move would drain their finances. However, the SC has prevailed upon the government to find a workable solution. The case will now be taken up again for the final hearing on October 5.