SC- The New Indian Express
The Supreme Court ruled on Tuesday that compound interest on loans from all borrowers between March and August 2020 will be removed entirely. It is nothing more than a fiscal stimulus with an SC imprint and is, strangely, effective in retrospect. It may also be the first time that interest on interest has been uniformly canceled, which will cost the board Rs 15,000 crore. Of this amount, the Center had presumably spent Rs.5,500 crore.
Hearing a batch of petitions, a bench of three judges led by Judge Ashok Bhushan refused to authorize a full waiver of interest on the loans, which the government set at Rs 6 lakh crore. Such a sum could burden the earth and seriously impact the financial health of a host of banks. The SC also refused to extend the moratorium period beyond August 2020.
Last October, the Center agreed to waive the interest-on-interest component for personal and small business loans up to Rs 2 crore for six months. The benefit has been extended to MSMEs, education loans, home loans, consumer durables loans, credit card contributions, car loans, personal and business loans, and home loans. consumption.
The exemption will now be extended to all borrowers, including large industries. Any amount received as compound interest will be adjusted to the next installments due. The SC has also lifted the moratorium on credits. This means that banks are now free to classify loans as bad if they see fit and to proceed with collections. It is estimated that the NPA will increase from Rs 1.3 lakh to Rs 8.5 lakh crore.
End of the SC loan moratorium: everything borrowers need to know
The Supreme Court ordered a waiver of compound interest for all borrowers. What does this mean to you? If you had taken advantage of a loan moratorium or deferred your EMI payments (including credit cards) that were due between March 1, 2020 and August 31, 2020, interest is not waived and will continue to accrue. on the unpaid balance as banks continue to have to pay interest to their depositors and retirees.
During the moratorium period, however, interest on interest or compound interest (which the SC calls criminal interest) is completely waived. This means that while the banks have already repaid the compound interest paid by borrowers on loans below 2 crore rupees, only others (especially large industries) now need to be paid. The repayment or compound interest will be adjusted at the next payable maturity instead of repaying it to the borrower regardless of the amount of the loan in question.
Will the regime be applicable to those who have not taken the moratorium?
The government had, in its decision of October 2020, clarified that the regime would apply, whether a borrower of the specified category had taken the moratorium in whole, in part or not at all.
Who will bear the cost?
The government has made it clear that it will pay the costs. It is estimated that the program will cost the government Rs 14,000 crore, according to brokerage firm ICRA. While the total cost to the government for small loans of up to Rs 2 crore was estimated at Rs 6,500 crore, the extended waiver will cost an additional Rs 7,000 to 7,500 crore.
Will I still have to pay additional interest if I choose the moratorium?
Yes, you will pay more interest if you choose to take advantage of the moratorium. Let’s see how it works. For example, you had taken out a home loan of Rs 70 lakh at 9% interest for a period of 20 years. The monthly payment in this case is Rs 64,400. If you have chosen to take the moratorium for three months, interest will continue to accumulate and amount to Rs 1,58,684. This will be added to your overall liability. Thus, the total amount payable will be Rs 1,54,58,049. If the moratorium has not been applied, the total amount payable will be Rs 1,51,15,396. You will pay a higher amount when you repay the IMEs because if you had not opted for the moratorium, you would have ended up saving Rs 3,42,653.
“Fiscal policies cannot be subject to judicial review”
Noting that it is better to leave political decisions to the government and regulators, the judiciary said economic policies do not lend themselves to judicial review and courts cannot intervene unless there are malafids. and arbitrariness.