Loan Moratorium: Huge Relief To Borrowers

In a huge relief to individual borrowers and MSMEs (Micro, Small and Medium Enterprises), the Centre on Friday informed the Supreme Court that it has decided to waive off the “interest on interest” on loans of upto Rs 2 crore during the loan moratorium period of six months between March and August, 2020.

This is applicable to MSME loans, education loans, housing loans, auto loans, consumer loans, durable loans, credit card dues, personal loans, professional loans and consumption loans. The Centre, which initially opposed to waive off the interest on interest or compound interest, has changed its mind following the recommendations of the expert panel chaired by ex-CAG Rajiv Mehrishi.

Meanwhile, the move could result in a huge loss to banks. Lenders may lose heavily on their operating profits for the next fiscal. However, several borrowers are expecting a complete interest waiver during the moratorium period.

Earlier in March, the RBI had given a three-month Moratorium on all term loans between March 1, 2020 to May 31, 2020. In May, the RBI extended the moratorium till Aug 31, 2020. For beginners, moratorium gives EMI holiday which gives relief on EMI repayments of loans to borrowers and the EMIs wouldn’t get deducted from their bank accounts, providing the much-deserved liquidity for the borrowers, individuals. The EMIs began from September after the moratorium time period’s expiry in August.