All you need to know about the government’s new interest waiver
The government said that an ex-gratia amount would be given to the borrowers of specific loan accounts even if they had not availed the moratorium in the six-month period.Updated: Oct 24, 2020, 20:31 IST
The Union finance ministry has announced a scheme for implementing a waiver of ‘interest on interest’ for six months between March and August and issued guidelines for the same. The scheme has come as a major relief for several borrowers across the country ahead of Diwali. Small businesses and individual borrowers with loans up to Rs 2 crore will be the beneficiaries of the scheme.
Ahead of the coronavirus pandemic, the Reserve Bank of India (RBI) had announced a moratorium on repayment for three months and it extended the moratorium period to August 31 later. A petition was filed in the Supreme Court by a borrower from Agra seeking exemption from interest during the moratorium considering the ‘extreme hardship’ people have faced due to the pandemic.
After that, the government said that an ex-gratia amount would be given to the borrowers of specific loan accounts even if they had not availed the moratorium in the six-month period. The amount given to each would be the difference between their simple and compound interest.
Who are the beneficiaries?
The benefits would be extended to the ones with MSME loans, education loans, housing loans, consumer durables loans, credit card dues, auto loans, personal and professional loans and consumption loans. The lending institute must be a banking company or a public sector bank, co-operative bank, regional rural bank, or All India Financial Institution, non-banking financial institution, housing finance company or microfinance corporation.
What are the features of the scheme?
1. It dictates an ex-gratia payment, the amount of which would be the difference between simple and compound interests to be credited to the borrower.
2. The rate of interest will be the same as the one in the loan agreement for education, automobile, housing, personal and consumption loans.
3. For credit card dues, the rate of interest will be the weighted average lending rate which the issuer charges for transactions on an EMI basis from its customers during March 1-August 31. Penal interest or penalty for late payment will not be subject to the weighted average lending rate.
4. The lenders must credit the ex gratia amount to the borrowers’ accounts by November 5 as directed by the government.
5. In case of cash credit, simple interest will be calculated on a daily basis with the rate of interest as on February 29, 2020. Compound interest will be calculated on a monthly basis and that difference will be credited to the borrower.
As mentioned in a government circular, anyone, irrespective of whether they have availed the moratorium or not, will be eligible for this scheme.
What will happen to the lenders?
The State Bank of India (SBI) will be the nodal agency which will receive funds from the government to settle the claims of the lenders. The lenders will have to submit their claims for reimbursement by December 15, 2020. According to government officials, the scheme will cost the government an estimated Rs 65 million.
(With agency inputs)