Ugly outcomes of the govt’s waiver of interest on interest
Ugly outcomes of the govt’s waiver of interest on interest The Indian government is willing to bear the cost of the waiver of interest on interest charges on loans in the wake of the distress due to the pandemic. The proposal seems well thought and middle class borrowers would rejoice the move if the Supreme Court rules in favour of this waiver. The apex court is scheduled to hear the case today. But as there are no free lunches, there are no equal borrowers either. The upsides of the proposal itself pose a difficult endgame to credit discipline. We take a look at what the proposal means in five points: Saving the Banks The government has kept the benefit of the waiver limited to loans of up to ₹2 crore and said it wants to support only the small borrowers who are the most vulnerable. But this limit is borne more out of necessity to protect banks than to help small borrowers. If the compound interest calculated during the six-month moratorium period was waived off for all borrowe...