The Centre’s scheme to bear the difference between the compound interest and simple interest on retail and MSME loans availed by borrowers whose aggregate outstanding borrowings were less than ₹2 crore between March 1 and August 31, has come not a day too soon. In spelling out the norms for lenders to identify eligible beneficiaries and then ensure that the extra ‘interest on interest’ be refunded by November 5 , the government has clearly been spurred by the Supreme Court’s admonition to expedite relief to small borrowers. With the top court having pointedly referenced the approaching festival of lights when it said “the common man’s Deepavali” was in the government’s hands , the Centre has ended up setting a really tight deadline of less than two weeks for banks and NBFCs to credit the differential amount to the borrowers’ accounts. The lenders have their task cut out to make sure that they pick out all the eligible loans — education, housing, consumer durables, automobiles, consumption, credit card borrowings, as well as credit provided to MSMEs — and that the borrowings had not turned into non-performing assets as on February 29. They will then have to refund the difference between the compound interest charged for the six-month period and the simple interest. In making all the specified borrowers eligible for the ‘ex-gratia’, the government has sought to ensure equity between those who may have availed of the repayment moratorium and others who had opted to continue to service their borrowings.
The move, however, has understandably evoked both relief and some disquiet. Retail borrowers, especially those who continued to meet their EMI commitments notwithstanding the disruptions caused by the pandemic and lockdowns, stand to marginally benefit from the government’s payment and will be a relieved lot. On the other hand, MSMEs may find the assistance far too small to make a material difference, given the scale of economic hardship they have had to endure — from demand destruction, to material and labour shortages and regulatory woes. Given that these businesses provide substantial direct and indirect employment and also generate valuable tax revenue, it would have made far greater economic sense for the government to have categorised them separately. The additional fiscal impact should be seen against the benefit that would accrue were even a reasonable number of these enterprises to remain viable and resume their contribution to the national economy. Also, the ₹2-crore limit for retail loans provides succour to not just ‘vulnerable’ borrowers but creates a moral hazard by benefiting the well-heeled too. All eyes will now be on the Court when it resumes hearing the matter next month.
