Ahan rai
26th October 2020
More than forty per cent of scheme credit and seventy-five per cent of borrowers would benefit from an interest-on-interest waiver on small loans that will cost the government about seven thousand and five hundred crore rupees, according to the survey.
Loan segments eligible for a waiver are MSMEs, education, housing, consumer durables, credit cards, automobile, personal, professional and consumption (Source- the economic times)
Last Friday, the Government of India told the Supreme Court that it would pay the banks the compound interest on small loans under two crore rupees- irrespective of whether or not the creditors had taken use of the moratorium- given that the loan was normal at the end of February. 'Crisil NSE -0.07% (National Stock Exchange of India Limited)' said in a note on Monday, "Such loans account for over forty per cent of the systemic credit and seventy-five per cent of borrowers, and the impact on the exchequer is around Rs seven thousand and five hundred crores". The exchequer's expense would be halved if the waiver were approved only where the ban-prolonged owing to the pandemic- had been used, it said.
A report by the Economic Times stated that lakhs of creditors, whether or not they had made use of a 'moratorium' during the lockdown, stand to get some cash back from the government as soon as they have agreed to come up with a plan to grant relief in the form of ex gratia payments.
According to Hindustan Times, from a borrower's perspective, the benefit for those who have used higher-yielding loans is comparatively higher. Therefore, holders of unsecured, micro, and gold loans would benefit more than those who have taken home loans. To certain categories of borrowers, including housing, credit card, and MSMEs (Ministry of Micro, Small & Medium Enterprises), cashback is the distinction between compound interest and basic interest for the period March 1, 2020, and August 31, 2020.
The government has requested lenders to refund the amount to qualifying borrowers no later than 'November 5, 2020' to ensure efficient and timely implementation. This would be the gap over the six months of the moratorium duration between compound interest and basic interest. Although lenders are expected to apply for repayment by December 15, the deadlines for receipt of government funds have not yet been notified.
For qualifying loans of up to two crore rupees- a full interest waiver- including interest on interest- would have affected Rs 1.5-lakh-crore and could have faced major challenges for both the government and the financial sector. MSMEs (Ministry of Micro, Small & Medium Enterprises), education, housing, consumer durables, credit cards, automobile, personal, professional, and consumption are some of the eligible waivers for loan segments.
According to Crisil, around sixty per cent of eligible loans were under moratorium as of the end of April, and the same is estimated to have come down to around 30 per cent as of end-August.
(Source- Economic Times, India Times, Hindustan Times, Indian Express, News Headines)
Edited by- Nivedita Dutta