In response to the widespread repercussions left behind by the Covid-19 pandemic, the Union government has recently set up an expert committee. The prime responsibility of this team is to assess and analyze the economic consequences of waiving both interest and interest on interest linked with the Covid-19 related loan moratorium.
Leadership and Objectives of the Committee
Rajiv Mehrishi, former Comptroller and Auditor General (CAG) of India, will chair the expert committee. They are to present a comprehensive report of their findings within a week. The primary objective of this team is to measure the repercussions on the nation’s economy and financial stability due to the waiver of interest and Covid-19 related loan moratorium.
The panel will additionally propose practical measures to alleviate the financial difficulties faced by various societal segments regarding this issue. The suggestions will encompass the actions to be adopted henceforth.
Underlying Background
This step follows the concerns raised during ongoing hearings at the Supreme Court concerning relief in terms of interest waivers and other related issues. The court has extended the interim order, preventing any account from being declared as Non-Performing Assets (NPA) until further instructions are issued. Two weeks’ time has been allocated for the Centre and Reserve Bank of India to file an affidavit, outlining the decisions taken on this matter.
Moratorium on Loan Repayments Explained
A loan repayment moratorium provides stressed customers with added time to settle their dues without having their accounts labelled as NPAs or impacts on their credit score. However, it is crucial to note that it is not a loan waiver and does not offer any discounts on interest payouts.
The Reserve Bank of India had permitted banks to defer payments of Equated Monthly Installments (EMIs) on home, car, and personal loans, including credit card dues, until 31st August 2020. To alleviate distress among firms with decreased production, the RBI allowed lending institutions and banks to defer interest on working capital repayments.
End of Moratorium and Introduction of Loan Restructuring Guidelines
A working capital loan is typically used to finance a company’s day-to-day operations. With the six-month moratorium on loan repayments having ended on 31st August, the RBI has unveiled the final loan restructuring guidelines as recommended by the K.V. Kamath Committee. The restructuring of corporate loans will be based on financial parameters defined in the RBI rules. For retail borrowers, lenders will establish board-approved policies for recasting loans.
