Concerning the borrowers under Micro, Small, and Medium Enterprises (MSME), the government went ahead and took on its shoulders the loss of interest to be earned on the interest payments missed due to the six-month moratorium which was decided due to the COVID-19 and its fallout where almost every business was stalled.
Initially, the government denied any such waiver because doing so would have hurt the survivability of the banks underwriting the loans. Upon intervention of the Supreme Court, and its guidelines to consider the situation and help the borrowers, the government came up with a plan.
The rationale put forward by the government when the borrowers were given permission to seek a six-moratorium on all loans due to the pandemic was that the lending institutions’ survivability would have become a question if they went along with the proposal.
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Thus, the lenders – banks and
housing finance companies - continued to charge interest on the entire amount
i.e. the principal and the expected interest payment during the moratorium.
If all the categories of the borrowers were given the relief, then the amount would be about Rs 6 lakh crore. Such an amount would deal a severe blow to the net worth of the banks. However, if the benefit was extended to a select list, then about Rs 2 lakh crore will be the burden on the banks.
The loans taken under the sectors education, housing, consumer
durables, credit card dues, auto, consumption, and personal loans to
professionals will receive the benefit of not having to pay interest on
interest.