“It is possible to work out the notional value of benefit that a borrower would have received if he had opted for the moratorium. The government can pass this on to those who paid their dues. It will be unfair to ignore those who have been paying their dues despite hardship,” a government source said.
While the details are yet to be worked out since the numbers are still awaited, a comprehensive exercise will be undertaken only if the Supreme Court accepts the ministry’s proposal to waive “interest on interest”. On Saturday, TOI ran an exclusive story detailing the government’s submission before the Supreme Court.
Farm loan waivers, announced by states in the past, had come under criticism both from the Centre and the RBI on the grounds that honest borrowers were being penalised.
‘Cost of relief to govt won’t exceed Rs 5,000-Rs 7,000cr’
According to Anil Gupta, vice-president at rating agency ICRA, the government can provide relief to those who have made payments on time by reducing a notional amount of “interest on interest” from their principal outstanding.
“Assuming not more than 30-40% of the overall loans of banks and NBFCs will be eligible for relief, the cost to the government should not exceed Rs 5,000-7,000 crore. This is assuming all borrowers are given relief irrespective of whether they availed the moratorium or not,” he added.
Officials said there were a large number of people who availed the moratorium for the entire six-month duration, but there were also some borrowers who used the facility only for a limited period of time, including delaying their EMIs for a few days.
“It’s a complex calculation and the government does not have all the numbers at the moment, especially from all NBFCs and housing finance companies,” a source said.
Responding to queries on whether the government has changed its mind after its initial reluctance in the Supreme Court, a senior official said the Centre was not dogmatic and open to reconsideration. The government has been keen on addressing sections affected by the pandemic and the waiver and the limit of Rs 2 crore reflected this, the official said.
According to bankers, there will not be any discretion in granting relief and the benefits will have to be passed after making changes in their software.
“In case where the repayment is in equated monthly installment (EMI), banks may have to build an application to implement the relief. The effect of the moratorium was an extension of the tenure (keeping the same EMI) or higher EMI (keeping the same tenure). Their interest on interest relief will be reflected in the reduced number of installments or slightly lower EMI for the same tenure,” IDBI Bank deputy MD Samuel Joesph Jebaraj said.
The government’s decision to compensate lenders also addresses the RBI’s concerns of banks and NBFCs paying for what is largely a social benefit in times of Covid-19, where several borrowers have to function with a lower income or in some cases, even without jobs.