Fair Lending
The government’s proposal to clamp down on unauthorised private lending practices signals a decisive move to tackle unregulated financial activities that have long preyed on vulnerable segments of the population.
A huge relief comes for the borrowers as the government has told the Supreme Court that it is ready to waive interest on the repayment of loans of up to Rs 2 crore, frozen by the Reserve Bank of India (RBI) in a six-month moratorium granted because of the coronavirus pandemic.
“Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest,” the government has said in an affidavit submitted yesterday.
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It added that it will seek parliament’s permission for grants to enable the move.
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The interest waiver will apply for loans taken by MSMEs, for educational, housing, consumer goods and auto loans and for credit card dues.
The waiver on interest will be irrespective of whether the borrower has availed of the moratorium.
Finance Ministry has said that waiving off interest on loans to every category would amount to a burden of Rs 6 lakh crore for banks.
“If the banks were to bear this burden, it would necessarily wipe out a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark on their survival,” it said.
The government’s change of stance is based on the recommendation of a government panel headed by former Comptroller and Auditor General Rajiv Mehrishi, which was tasked with examining the effects of the coronavirus and the lockdown on various sectors.
Government had argued in earlier court hearings that waiving interest on deferred EMIs during the moratorium period would be against “the basic canons of finance” and unfair to those who repaid loans on schedule.
But the Supreme Court had made it clear that the government needs to find a solution and not “hide behind the Reserve Bank”.
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