Finance Ministry's decision to award ex-gratia payment to certain borrowers against the difference between simple and compound interest will benefit more than 40 per cent of systemic credit and 75 per cent borrowers, rating agency CRISIL said on Monday. The agency said that the scheme would amount to a Rs 7,500 crore benefit for borrowers.
On Friday, Finance Ministry released the guidelines for implementing the interest-on-interest waiver during Reserve Bank of India's six months of loan moratorium from March 1, 2020, to August 31, 2020. The scheme offers to pay ex-gratia payment to borrowers with outstanding loans up to Rs 2 crore, whether they availed the moratorium or not.
Loans under MSME, education, housing, consumer durables, credit card, automobile, personal, professional, and consumption segments will be covered under the scheme. Borrowers whose loan accounts were not declared NPAs by February 29, 2020, would be eligible for this scheme.
"The benefit will be extended to borrowers with outstanding loans (standard as on February 29, 2020) of less than Rs 2 crore under select categories3, irrespective of whether the moratorium was availed of or not. Such loans account for more than 40 per cent of systemic credit and 75 per cent of borrowers," CRISIL said.
The rating agency added that the cost to exchequer would have halved if waiver was allowed only where moratorium was availed of. The complete interest waiver would have led to a Rs 1.5 lakh crore impact, which could have posed grave challenges before the government as well as the financial sector, CRISIL Senior Director Krishnan Sitaraman said.
"CRISIL's analysis shows a complete interest waiver (including interest on interest) for eligible loans up to Rs 2 crore would have meant a staggering ~Rs 1.5 lakh crore impact. This could have posed significant challenges for the government as well as the financial sector. Waiver of only interest-on-interest will have a much milder and manageable impact," Sitaraman said.
Extending the benefits of interest waiver to all borrowers also allays feeling of unfair treatment that borrowers could have otherwise harboured, CRISIL said.
"Extending the benefit to all eligible borrowers irrespective of whether they have availed of moratorium or not will assuage concerns over unfair treatment that borrowers not availing of moratorium could have otherwise harboured," said Malvika Bhotika, Associate Director, CRISIL Ratings.
While the waiver will offer a modicum of relief in terms of cash flows, repayment discipline among borrowers after the moratorium ended - and thus medium-term delinquencies at banks and NBFCs - will bear watching, the rating agency warned.