Government sets up expert panel to assess impact of interest exemption on moratorium on six-month loans


New Delhi: The government established an expert committee headed by former Comptroller and Auditor General (CAG) Rajiv Mehrishi to assess the impact of waiving interest and interest on interest on loans during the moratorium offered to borrowers affected by Covid which ended on August 31.

The panel, which was announced Thursday evening, has been asked to submit its report within a week.

This follows the Supreme Court giving the government until September 28, when the next hearing will be held on petitions related to the moratorium, to clarify its view on waiving interest during the six-month period. Earlier today, the court ordered banks not to report any loans as non-performing assets (NPAs), if they had not been classified as NPA as of August 31, until further notice.

Agencies

The Reserve Bank of India (RBI) in March this year authorized banks to offer a three-month moratorium on principal and interest payments from March 1 to provide relief to borrowers affected by the Covid-19 pandemic . This was then extended for three months until August 31.

Impact on depositors, banks

The three-member committee was tasked with measuring the impact on the national economy and financial stability of waiving interest and interest on the interest on these loans. It will also propose measures to alleviate the financial constraints of various strata of society as a result of such a decision.

A government source told ET that there were concerns about the impact of such relief on depositors, who also included retirees, and the functioning of banks as business entities playing a significant role in the global economy.

The other members of the committee are Ravindra H Dholakia and B Sriram. Dholakia is a former IIM professor in Ahmedabad and was a member of the RBI Monetary Policy Committee. Sriram is a former Managing Director of SBI and IDBI Bank.

The committee may consult with banks or other stakeholders, if deemed necessary for that purpose, according to the finance ministry statement.

The court wants the government to address two issues – whether interest can be charged on the interest and whether credit rating agencies can downgrade a company that was affected by the pandemic during the moratorium period.

“Specific instructions regarding the imposition of compound interest and credit rating / downgrading during the moratorium period must be obtained, so that an appropriate order can be made at the next court date,” said Thursday. court. “Any decisions made by the Indian government, the RBI or different banks should go to court for review…. The provisional orders continue.

The status quo on not reporting NPA accounts would provide relief to borrowers classified as standard but delinquent on February 29. These borrowers were eligible for the moratorium until August 31, but could risk being declared NPA if they do not start servicing the loans. now. They can be classified NPA if the delay time exceeds the threshold of 90 days after exclusion of the moratorium period.

The government had previously supported the Reserve Bank of India’s position that interest could not be waived as it would undermine the financial sector and a single formula could not be applied to all sectors. The Supreme Court had insisted that the government clarify its own position on the issue, saying it should not ignore the plight of borrowers due to the pandemic.

The government had rejected a plea for a uniform interest relief policy, arguing that all loan accounts were different and that any relief would be sectoral and on a case-by-case basis.

Under the RBI moratorium plan, there can be no waiver of interest during the period. It is added to the principal amount, resulting in interest on the interest. Borrowers’ outstanding EMIs were converted into a loan and the repayment term was extended accordingly.

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