1/n Thread on govt proposal on compound interest (more widely being called interest-on-interest). Impressions based on affidavit and wording of affidavit.

2/n Govt is saying they will waive "interest on interest" for *all borrowers*. This is equivalent to an across the board subsidy that the govt could have announced at the start.

3/n But since it didn't, we now have different categories of borrowers: those who took moratorium for all six months, those who took it for a part of the six months and those who didn't take it at all.

Now you want to compensate these borrowers. How do you do it? If you only compensate based on who took the moratorium and for what period, you are sending the wrong signal - weak credit gets rewarded.

5/n So you try and find an equitable way. That way is to give the same amount of relief to *all* borrowers. This is equitable from the point of the relief giver.

6/n What about the relief taker?

Those who took the moratorium and have compound interest accrued, will see that waived and benefit via the waiver. Those who took it partially, will see a smaller compound interest waived and rest set off against a future payment.

7/n Those who did not take the moratorium at all, will see the amount fully set off against a future payment. The amount of relief is the same for all. The use of that relief differs from category to category.

No waiver is good but if one has to be done, this (in my view) is the cleanest.

It is effectively, back-dated subsidy.

End Of Thread.