Government direct banks to waive off ‘interest on interest’ during moratorium
Banks and lending institutions, after crediting the amount to the accounts of eligible borrowers, will claim the same from the Central governmentUpdated: Oct 24, 2020, 20:46 IST
The government has directed lending institutions to credit ‘interest on interest’ charged from borrowers for loans up to Rs 2 crore in the six-month moratorium period to provide relief to takers of loans for home, education, automobiles, consumer durables, micro, small and medium enterprises (MSMEs) and credit card dues, a finance ministry order said.
In view of “unprecedented and extreme Covid-19 situation” the Central government has approved “Scheme for grant of ex gratia payment of difference between compound interest and simple interest for six months [March 1, 2020 to August 31, 2020] to borrowers in specified loan accounts,” the order issued late night on Friday said.
A finance ministry official said that the announcement is as per the commitment of the government before the Supreme Court that relief will be provided to the borrowers before Diwali. “The benefit will be extended to eligible borrowers through lending institutions and they will be reimbursed the money,” the official said requesting anonymity. HT reported it on Monday.
Those who have not availed moratorium will also get the benefit provided their loan amount is not more than Rs 2 crore, the official said. “Borrowers... who have loan accounts having sanctioned limits and outstanding amount of not exceeding Rs 2 crore (aggregate of all facilities with lending institutions) as on 29.2.2020, shall be eligible under the scheme,” the finance ministry order said.
“Any borrower whose aggregate of all facilities with lending institution is more than Rs 2 crore (sanctioned limit or outstanding amount) will not be eligible for ex-gratia payment under the scheme,” it said. It is also necessary that the borrower’s account must not be a non-performing asset (NPA) as on February 29, 2020, it added.
Banks and lending institutions, after crediting the amount to the accounts of eligible borrowers, will claim the same from the Central government, the official mentioned above said. The government is expected to bear about Rs 6,500 crore on this account, he added.
On March 27, the Reserve Bank of India (RBI) had announced a three-month moratorium on term loans from March 1 to enable borrowers to tide over the economic fallout of the Covid-19 pandemic. On May 22, it extended the moratorium period by another three months until August 31, 2020.
The compound interest waiver scheme has ensured that commercial banks and other lending institutions will not have any adverse financial impact, which is in line with the suggestion of an expert panel chaired by formal Comptroller and Auditor General of India, Rajiv Mehrishi, the official said. Based on the report, the government has decided to reimburse banks for their losses on this account, he added.
The finance ministry on September 10 set up an expert committee under Mehrishi to assist the government in assessment of relief to bank borrowers. The panel was formed after concerns were raised during the proceedings of a hearing in the matter of Gajendra Sharma versus Union of India and others, where an Agra-based petitioner had sought waiver of interest during the moratorium
The other members of the committee were Ravindra H Dholakia, former member of the Monetary Policy Committee of RBI and B Sriram, former managing director of State Bank of India (SBI).