Opinion : Centre To Waive Interest On Loans Up to ₹ 2 Crore

This is another suicidal for Public Sector Banks in India, government has decided to waive the compounded portion of interest on loans up to Rs two Crore where moratorium were given due to COVID-19. The government has told the Supreme Court that it is ready to waive interest on the repayment of loans of up to ₹ 2 crore, frozen by the Reserve Bank of India (RBI) in a six-month moratorium granted because of the coronavirus pandemic.

The interest waiver will apply for loans taken by MSMEs (Micro, Small and Medium Enterprises), for educational, housing, consumer goods and auto loans and for credit card dues.

If 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.

Waiver 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.

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Opinion

The waiver on interest is completely unfair on part of depositors. If banks are not allowed to charge interest from borrowers they will not be in a position to fufill their obligation towards depositors and the rate of interest on deposits will be come down heavily which is already all time low.

This is also not fair with the honest borrowers who had paid their dues on time fearing the compounded interest. After waiving the interest on loan dues, the government has strengthen the defaulters. It will also impact the income of the bank and subsequently on the bank employees. The 11th Bipartite Settlement of the bank is pending for long and the hike offered by the IBA is just 15% citing the negative profitability.