Compound interest exemption for all borrowers to cost government 7,000-7,500 cr

Mumbai: Supreme Court decision to allow compound interest exemption for all borrowers between March and August, regardless of loan size, will cost government another ??7,000-7,500 crores.

“According to our estimates, the compound interest for a six-month moratorium for all lenders is estimated at ??13,500-14,000 crores. The government had already announced relief for borrowers who borrowed up to ??2 crore which was estimated to cost ??6,500 crore at the chessboard. With the announcement of the waiver for all borrowers, additional relief from ??7,000 to 7,500 crore will need to be provided to borrowers, ”said Anil Gupta, vice president (financial sector ratings) at Icra Ltd.

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The government announced that loans to individuals and small businesses up to ??2 crore will benefit from the compound interest exemption during the moratorium period from March to August. Eight sectors to which this benefit has been extended are micro, small and medium enterprises (MSMEs), education loans, housing, consumer durables, credit card contributions, car loans, personal loans and professional and consumer loans. The moratorium, announced to help borrowers weather the covid-induced crisis, ended on August 31.

She had informed the court in October that if the government considered waiving interest on all loans and advances to all classes and categories of borrowers corresponding to the six-month moratorium period, the estimated cost would be ??6,000 billion. This is a complete waiver of interest and not just compound interest.

The Supreme Court said on Tuesday that there was no justification in policy to limit the benefit of the interest waiver on interest only to categories of loans below ??2 crores.

Meanwhile, the covid-19 pandemic has put a strain on government finances. Also in FY 22, central and state governments are expected to retain additional borrowing programs. It is estimated that the net borrowing of state governments will be ??6.5 trillion and central government net borrowing will be another ??9.5 trillion for the next fiscal year.

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