Someone is bound to get hurt
Brew
The moratorium is a big word and a complicated word. The moratorium, by definition, is the temporary postponement of payment of interest/principal/installments, and not a waiver of loan repayments…
And on March & May 20 the Reserve Bank of India suspended all loan repayments due from March 2020 until August 2020.
It isn’t a Maafi. It isn’t a waiver. It is simply a postponement of sorts.
When the RBI sought to provide a respite to borrowers by allowing lenders to offer a six-month moratorium on loan repayment, little did it expect that its move would boomerang and even threaten the very financial stability of the banking system.
Now, there is an ongoing debate about a possible waiver on interest payments for the six months of the moratorium period granted by the RBI.
Here’s the bubbling topic
Charging interest on interest during the moratorium period will be adding to the burden, not helping them.
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The economy is in a contraction mode, there is no business revival, Massive lay-offs and pandemic have paralyzed the economy. Hence, the interest amount for the moratorium period should be waived entirely
If interest waiver is not given, borrowers who have opted for the six-month moratorium will see their repayment burden escalating. This, possibly, could lead to more defaults. That’s a tough situation.
But, banks and RBI aren’t in favor of this demand. Banks will have to take a hit of about Rs 2 lakh crore if banks undertake the interest waiver. After all, banks have to charge interest on loans to pay interest to depositors. That’s the basis of the business itself.
Well, Banks can effectively use this scheme on a case-to-case basis to avert another bad loan crisis. Cases, where borrowers are severely, genuinely hit, and have no cash to repay, can be given an interest waiver while those who can afford to pay can do so.
There are suggestion on the deck like
Another two years of the moratorium under debt resolution (recast) window
Extension of a moratorium for at six months and interest to be reduced to a level at which banks pay depositors
Cases, where borrowers are severely, genuinely hit, can be given an interest waiver
Ultimately burden fell upon the taxpayer and questions will arise from those borrowers who chose to continue paying their EMIs during the COVID lockdown despite the adverse economic scenario.
Ultimately taxpayers will have to be ‘aatmanirbhar’ (self-dependent) while saving themselves from the interest waiver burden.
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