The benefit will be extended to borrowers with outstanding loans (standard as on February 29, 2020) of less than Rs 2 crore under select categories, irrespective of whether the moratorium was availed of or not.
“The cost to exchequer would have halved if waiver was allowed only where moratorium was availed of,” Crisil said in a press note.
To ensure effective and timely implementation, the government has asked lenders to credit the amount to eligible borrowers latest by November 05, 2020.
This will be the difference between compound interest and simple interest over six months (March 1, 2020 to August 31, 2020). While lenders have to apply for reimbursement by December 15, 2020, the timelines for receipt of funds from the government are yet to be notified.
“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,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings. “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.”
With the government expected to bear the cost of waiver on small-borrower loans, the potential burden on lenders – already facing profitability pressure and asset-quality challenges because of the Covid-19 pandemic and challenging macroeconomic environment – has eased.
From a borrower’s perspective, the benefit would be relatively higher for those who had availed of higher-yielding loans, the rating agency said. Borrowers of unsecured, micro and gold loans will benefit more than those who had taken home loans.
“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.