The Union cabinet committee on economic affairs has discussed and agreed on a proposal for an ex-gratia payment of 'interest on interest' charged on loans for the six-month moratorium period announced in the wake of the COVID-19 pandemic, sources told CNBC Awaaz.

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According to the proposal, the government will pay the difference between compound interest and simple Interest. The ex-gratia payment of 'interest on interest' will be applicable for six months and only for selective specified loans, sources added.

However, as the matter is in the Supreme Court, the government will communicate the decision to the court first.

On October 14, the Supreme Court has asked the government to implement the decision to waive “interest on interest” or compound interest charged on loans of up to Rs 2 crore for the six-month moratorium period announced in the wake of the COVID-19 pandemic.

As per the government affidavit submitted to the court, specified loans include MSME loans, education loans, housing loans, consumer durable, loans, credit card dues, auto loans, personal loans and consumption loans.

The government estimates a likely outgo of Rs 5,500 crore on the compound interest waiver.

First Published:Oct 21, 2020 2:35 PM IST