The Centre on Friday filed an affidavit before the Supreme Court on loan moratorium issue and said it has decided to waive compound interest (interest on interest) for a moratorium period of six months for Ministry of Micro, Small and Medium Enterprises (MSME) and personal loans up to Rs 2 crores.

"In view of the cumulative circumstances, after careful consideration and weighing all possible options, the respondent, UOI has decided to continue the tradition of handholding the small borrowers," the affidavit said.

"The Government, therefore, has decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers," it added.

The affidavit said any account becoming non-performing even due to the bank's or any other delay, need not suffer from being labelled as NPA. It said Securities and Exchange Board of India (SEBI) has already issued a circular on March 30, 2020, providing for relaxation from the recognition of default due to the moratorium.

"On August 31, 2020, it has further specified that in cases of restructuring, the same may not be considered a default by rating agencies," it said.

The moratorium case is likely to come up for hearing before the Supreme Court on October 5.