New Delhi : 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.
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.
The ministry also said that waiving off interest on loans to every category would amount to a burden of Rs 6 lakh crore for banks.
The RBI allowed borrowers to seek a six-month moratorium on all loans, which the centre and RBI had earlier told the court could be extended by up to two years.