The Centre has told the Supreme Court that it was ready to waive compound interest on the repayment of loans up to Rs 2 crore during the moratorium period declared amid the coronavirus pandemic, Live Law reported on Saturday. The case will be taken up again on Monday.

The interest waiver will apply for loans taken by Micro, Small and Medium Enterprises, for education, housing, consumer goods and auto loans, personal loans, and for credit card dues. For the categories specified by the government, the waiver on interest will be irrespective of whether the borrower has availed of the moratorium.

The Centre submitted that it had decided to continue the “tradition of hand holding the small borrowers” and therefore, it has waived interest for the said period for the most “vulnerable category of borrowers”.

“In other words, any individual/entity whose loan amount is more than R. 2 crore will not be eligible for waiver of the compounding of interest, which shall be conned to only the above referred categories of borrowers,” the government has said in an affidavit submitted on Friday, adding that it would seek Parliament’s permission for grants to enable the move.

“Under pandemic conditions, the only solution is for the government to bear the burden of waiving of interest,” the Centre said, according to NDTV. The government’s decision marks a shift from its earlier stance that any kind of interest waiver would not be possible as it would adversely affect banks.

During the last hearing on September 10, the Centre had informed a bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah that that an expert committee had been constituted to take a decision on moratorium extension, interest during moratorium, and other related matters. Solicitor General Tushar Mehta sought two weeks’ time in order to file an affidavit in this regard.

Considering the economic impact of the lockdown imposed to fight the coronavirus crisis, the Reserve Bank of India had on March 27 said that banks would be allowed to grant a moratorium of three months on payment of all installments due between March 1 and May 31. On May 23, it said that banks can extend the moratorium until August 31.

However, the RBI had said it would be imprudent to go for a forced waiver of interest, risking the financial viability of the banks it was mandated to regulate and putting the interests of the depositors in jeopardy.

Last month, the Centre said the loan moratorium scheme can be extended by a period of two years after the top court had criticised the Centre for “hiding behind the RBI” without making its stand clear on the loan moratorium.