Centre to waive off 'compound interest' accrued on loans during moratorium period

The Central government on Friday informed the Supreme Court that it has decided to waive off the compound interest accrued during the six-months moratorium period granted due to the COVID-19 pandemic, for MSME loans and personal loans up to Rs 2 crore.

Centre submitted that relief on waiver of interest on interest can be given to the most vulnerable category of borrowers only, which constitutes of:

• MSME loans up to Rs 2 crore
• Education loans up to Rs 2 crore

• Housing loans up to Rs 2 crore

• Consumer durable loans up to Rs 2 crore

• Credit card dues up to Rs 2 crore

• Auto loans up to Rs 2 crore

• Personal loans to professionals up to Rs 2 crore

• Consumption loans up to Rs 2 crore

However, any individual or entity whose loan amount is over Rs 2 crore will not be eligible for waiver of compounding of interest.

The submission has come after pleas seeking extension of the Covid-19 induced loan moratorium and waiver of accruing interest. The action of imposition of interest during the moratorium period is “completely devastating, wrong and in a way has taken away the benefit of imposing moratorium”, the petitioners contended, reported LiveLaw.

Centre further said, “It is impossible for banks to bear the burden resulting from waiver of compound interest without passing on the financial impact to the depositors or affecting their net worth adversely which would not be in the larger economic interest.”

Therefore, the only solution is that the government bear the burden resulting from the waiver of Compound interest, it added.

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