The Central Government has filed an affidavit dated 02.10.2020 in the ongoing case of Gajendra Sharma vs Union of India (W.P. Civil 825 of 2020) regarding waiver of Interest on Interest During Moratorium.
Earlier the Government informed Supreme Court that they are discussing the issue at the highest level. Read Here.
The Affidavit has been filed by the Under Secretary to the Government of India in the Department of Financial Services, Ministry of Finance. It has been filed in compliance of the order dated 10.09.2020 passed by the Supreme Court and also to apprise the Court about various mitigating steps taken by the Central Government to deal with the problems arising out of the global financial situation post COVID.
In the Affidavit, it has been highlighted that how the Government has taken several fiscal measures to provide relief to people. It has been categorized as follows:
(a) Pandemic related relief from Government:
The first element of the relief has been through the Garib Kalyan package and the Aatma Nirbhar package announced by Government. The Garib Kalyan package was for Rs 1.70 lakh crore involving free food grains, pulses, and gas cylinders and cash payment to women, poor senior citizens and farmers. The Aatma Nirbhar package was for Rs. 20 lakh crore, involving support to Micro, Small and Medium Enterprises (MSMEs), Non-Banking Finance Companies, agriculture, sectors allied to agriculture, contractors, street vendors, State Governments, relief in provident fund contribution, an extension of subsidy on home loans, etc.
(b) Measures taken by RBI: The second element of the relief has been a series of steps by the Reserve Bank of India (RBI) which enhanced availability of liquidity for lenders, reduced interest (repo) rates, extended timelines for implementation of previously approved resolution plans, and announced a moratorium for borrowers and a framework for restructuring of existing loans for borrowers impacted by COVID-19. The framework provides adequate flexibility for waiving penal interest as well as compound or even simple interest on a case by case basis, as warranted. The framework for resolution provides distinct windows for MSME accounts as well as for accounts other than MSMEs, which were up to 30 days overdue as on 1.3.2020, while retaining the prudential framework of 7.6.2019 under which cases not covered under the 6.8.2020 circular can get relief. All personal, MSME and corporate loan accounts are therefore generally covered under one or the other circular.
Further, the Government has stated about the impact of Waiver on Interest. It is stated that if the Government were to consider waiving interest on all the loan and advances to all classes and categories of borrowers corresponding to the six-month period for which the moratorium [i.e., deferment of payment of instalment] was made available under the relevant RBI circulars, the estimated amount is more than Rs. 6 lakh crore.
If the interest is waived on all the loans and advances, with regard to all classes and categories of borrowers, the amount to be foregone would be more than Rs. 6 lakh crore.
The Affidavit states that If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival. This was one of the main reasons why waiver of interest was not even contemplated and only payment of instalments was deferred.
It has been mentioned that the relief to all borrowers in respect of compounding of interest during the period of moratorium would be admissible to the specific categories irrespective of whether the borrower had availed of moratorium or not.
The Government will seek due authorisation from Parliament for making appropriate grants in this regard. This endeavour shall be over and above the support of Rs. 3.7 lakh crore to MSMEs, Rs. 70,000 crore for home loans, etc. already extended through the Garib Kalyan and Aatma Nirbhar packages announced by Government earlier.
It has been submitted before the Court that the only solution, under the circumstances, is that the Government bear the burden resulting from waiver of compound interest. Government bearing this burden would naturally have an impact on several other pressing commitments being faced by the nation, including meeting direct costs associated with pandemic management, addressing basic needs of the common man and mitigating the common man’s problems arising out of the loss of livelihood.
The Affidavit states that Considering the aforesaid cumulative circumstances, the Central Government has decided to continue the tradition of handholding the small borrowers. 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.
Following are the categories, in whose case, the compounding of interest will be waived:
(i) MSME loans up to Rs. 2 crore
(ii) Education loans up to Rs. 2 crore
(iii) Housing loans up to Rs. 2 crore
(iv) Consumer durable loans up to Rs. 2 crore
(v) Credit card dues up to Rs. 2 crore
(vi) Auto loans up to Rs. 2 crore
(vii) Personal loans to professionals up to Rs. 2 crore
(viii) Consumption loans up to Rs. 2 crore
In other words, any individual/ entity whose loan amount is more than Rs. 2 crore will not be eligible for waiver of the compounding of interest, which shall be confined to only the above-referred categories of borrowers.
For the NPA, the Affidavit states that the Resolution framework announced by RBI provides that loan accounts which slip into NPA between invocation and implementation may be upgraded as Standard on the date of implementation itself