Timely EMI payers may be Rewarded

The Govt plans to waive compound interest on equated monthly instalments (EMIs) of loans valued at up to Rs. 2 crores, extending the benefit to all types of loans, including home mortages, & to borrowers who paid their EMIs during the duration of the moratorium, two officials aware of the plan said.

The plan to waive interest on interest during the moratorium between March 1 & Aug 31 is a work in progress & a formal announcement is expected before Diwali, the officials said, requesting anonymity.

One of the officials, who is in a senior position in the Finance Ministry said that “There should not be any sector-specific discrimination. It is not prudent to exempt interest on interest for personal loans only & deny the same for home loans. It will be extended to all those who have taken loans up to Rs 2 crore, which is a reasonable limit".

On March 27, the RBI had announced a 3-month moratorium on terms loans from March 1 to enable borrowers to tide over the economic fallout of the Coronavirus pandemic. On May 22, it extended the moratorium period by another three months until August 31, 2020.

The Official said that “The compound interest exemption during the moratorium period will be equally available to all borrowers – those who availed the six-month moratorium & those who continued paying [their EMIs] even during the six-month period".

The Govt has committed to the Apex Court that “interest on interest” will be waived during the six-month moratorium period for loans up to Rs 2 lakh crore, the second official said.

The Official said that “As the move has significant financial implications, details are being worked out with a target to provide the relief to borrowers soon, latest by Diwali".

The compound interest waiver will ensure that the government’s decision will not have any adverse financial impact on commercial banks, which is in line with the suggestion of an expert panel chaired by formal Comptroller & Auditor General of India, Rajiv Mehrishi. Based on the report, the government has decided to reimburse banks for their losses on this account, the official said.

The Finance Ministry on Sept 10 set up an expert committee under Mehrishi to assist the Govt in assessment of relief to bank borrowers. The panel was formed after concerns were raised during the proceedings of a hearing in the matter of Gajendra Sharma versus Union of India & others, where an Agra-based petitioner had sought waiver of interest during the moratorium

The other members of the committee were Ravindra H Dholakia, former member of the Monetary Policy Committee of RBI & B Sriram, Ex-Managing Director of SBI. 

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