NEW DELHI/MUMBAI – The Indian government has told the Supreme Court it will waive certain interest levies on loans up to 20 million rupees ($272,888) under a COVID-19 support plan, a legal filing showed, in a move that will bring relief to millions of borrowers.
Gajendra Sharma, 53, an optician, poses inside his shop selling eye glasses in Agra, India, September 11, 2020. Picture taken September 11, 2020. REUTERS/Aftab Ahmed/Files
While the government did not disclose the impact on the banking sector, an analyst at credit ratings firm ICRA estimated it will cost New Delhi a maximum of 50-70 billion rupees ($682 million-$955 million).
“We expect the impact to be minimal on profitability of lenders,” said ICRA’s Anil Gupta.
An Indian optician from Agra had challenged the plan which allowed skipping repayments for six months but levied an additional “interest-on-interest” on delayed payments.
Other borrowers, including real estate companies and power utilities, also challenged the plan.
In a filing on Oct. 2 with the Supreme Court, seen by Reuters, the government said it had decided to waive the compounding interest component on small business and some other loans related to education and housing, and credit card dues.
“The government bearing this burden would naturally have an impact on several other pressing commitments being faced by the nation, including meeting direct cost associated with pandemic management, addressing basic needs of the common man,” the filing added.
If the government were to consider a complete waiver of interest payments over a six-month moratorium period, as some had sought, it would cost 6 trillion rupees ($82 billion), the filing said.
“If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth … this was one reason why waiver of interest was not even contemplated,” the government’s legal document said.