New Delhi: The government’s decision pertaining to waiver of interest-on-interest on loans under moratorium would be a manageable outcome as the value impact of waiving interest-on-interest is quite limited feel experts.

According to rating agency ICRA, assuming that not more than 30-40 per cent of the overall loans of the banks and NBFCs would be eligible for relief, the cost to the government should not exceed Rs 5,000 to Rs 7,000 crore.

Jefferies India analysts in a report said, “If the extent of waiver from banking sector to borrowers is limited to interest-on-interest only, it would be a manageable outcome as value impact of waiving interest-on-interest is quite limited and will also address the overhang.”

Anil Gupta, vice president, financial sector ratings at ICRA Ltd said, “Assuming not more than 30 to 40 per cent of the overall loans of the banks and NBFCs will be eligible for relief, the cost to the government should not exceed Rs 5000 to Rs 7000 crore. This is assuming all borrowers are given relief irrespective of they availing the moratorium or not.”

“To bring in parity between borrower who availed moratorium and one who didn't, a notional amount of interest on interest will need to be reduced from the principal amount outstanding against the borrower who didn't avail moratorium. Also given the intent of the government to absorb the cost of the waiver, we expect the impact to be minimal on profitability of lenders,” added Gupta.

The central government, in an affidavit filed in the Supreme Court, has supported waiving compound interest or ‘interest on interest’ for small ticket loans up to Rs 2 crore. The relief would be available to all borrowers, the government said in the affidavit but did not specify the manner in which relief would be provided to those who may  not have availed the moratorium.

State Bank of India’s new chairman Dinesh Khara in his first press interaction refused to comment on the issue as the matter is subjudice.

According to Reuters story, domestic banks fear that the government’s decision would create unnecessary work for lenders and lead to more litigation, without providing much of a boost for the sagging economy.

“Getting the money back from the government is a painful exercise,” said a senior banker at one of India’s shadow banks.

“At the end, a lot of work will happen, nobody will be happier and the government will be poorer.”