Compound Interest Waiver Scheme To Be Issued By Nov. 15: Finance Ministry
The Supreme Court will hear the interest on interest waiver case next on October 13.
The Finance Ministry has informed the Supreme Court that the decision to bear the cost of compound interest for borrowers of loans up to Rs 2 crore for the six-month moratorium was taken in the public interest in the specific context of the pandemic.
The scheme for implementation of the decision will be put in place by November 15, says the ministry’s affidavit filed with the court. The finance ministry has also requested not to grant any further relief in the case apart from what has already been decided and submitted in the court.
Implementation Framework By Nov. 15
The eight categories of loans for which compound interest, or interest on interest, is likely to be waived carry diverse terms and conditions, different interest rates and the manner of calculation and compounding, and a careful study is in progress to formulate modalities to implement the decision, the ministry said.
‘’The said process would be to get an appraisal done by the Expenditure Finance Committee, and thereafter, would be placed for approval of the Union Cabinet. After the Union Cabinet approves, Office Memorandum/circular/order will be issued, which would need subsequent authorisation of Parliament to incur expenditure, which is in excess of the present budgetary provisions.’’ said the ministry’s reply
The framework to be followed by lending institutions in granting waiver of compound interest shall be put in place through a scheme which will be issued through an office memorandum by Nov. 15, the affidavit said.
Lending institutions will have to implement the waiver within one month from the date of issue of the office memorandum and thereafter they can approach the central government to re-imburse the cost of waiver.
Further Relief May Impact The Economy: Government
The Finance Ministry has also requested the court not to grant any further relief in the petitions being heard in this case by the top court.
The reply filed by the ministry highlights the steps it and the Reserve Bank of India have taken to provide relief to individuals, small businesses and large corporations in the wake of the pandemic. It opposes the petitioners requests such as seeking sector-specific relief and expanding the scope of RBI’s restructuring framework announced in August.
‘’The petitioners / interveners cannot pray for sector specific relief of either waiver or restructuring by way of present proceedings under Article 32 of the Constitution of India as the question of such financial stress management measures require examination and consideration of several financial parameters and its impact and are not suited for being judicially decided or be subjected to judicial review’’ said the ministry’s affidavit.
It also says going any further than what has been decided and submitted in the court may be detrimental to the national economy and the financial sector.
It is submitted that considering the very complex nature of fiscal issues involved and complex nature of lending activities of different types of lending institutions, this Hon’ble Court may be pleased to take on record the decisions taken by the Central Government and other stakeholders and may not permit the petitioners/intervenors to pray for any judicial review any further.Finance Ministry Affidavit
The Back Story
The top court is hearing a batch of petitions which sought relief on compound interest payments subsequent to a six-month moratorium on loans allowed by the RBI on discretion of lenders.
On the instructions of the top court to take a decision on the petitioners’ requests, the government decided to bear the cost of compound interest for loans up to Rs 2 crore for this period. This would be available for:
MSME loans
Education loans
Housing loans
Consumer durable loans
Credit card dues
Auto loans
Personal loans to professionals
Consumption loans
In the last hearing the court had asked the government and the RBI to file their responses to grievances highlighted by some petitioners. The case will next be heard on Oct. 13.