Didn’t skip EMIs during lockdown? Get cashback from your bank: Government
Those who have not opted for a loan moratorium will also be eligible for the 'interest waiver' scheme Earlier, the Centre approved a scheme to ‘grant of ex-gratia payment of the difference between compound and simple interest to borrowers of specified loan accounts’ for six months
In a major relief to borrowers amid a global pandemic, the finance ministry has issued the guidelines for implementing a waiver of 'interest on interest' for six months. The payments will be made to individual borrowers and small businesses with loans of up to ₹2 crores.
In the wake of the coronavirus pandemic in the country, the Reserve Bank of India had in March announced a moratorium on repayment of EMIs and credit card dues for three months. The central bank later extended the moratorium period till 31 August. A borrower from Agra later filed a petition in the Supreme Court that no interest should be charged during the moratorium, considering the 'extreme hardship' faced by people during the pandemic.
The Centre then approved the scheme to ‘grant of ex-gratia payment of the difference between compound and simple interest to borrowers of specified loan accounts’ from 1 March to 31 August.
The interest waiver scheme will apply to
The benefit will be extended for loans below ₹2 crores availed across eight categories: 1) Micro, small and medium enterprises (MSMEs) loans, 2) Education loans, 3) Housing loans, 4) Consumer durables loans, 5) Credit card dues, 6) Auto loans, 7) Personal and professional, 8) Consumption loans
The lending institution has to be either a banking company, or a public sector bank, a co-operative bank or a regional rural bank, or All India Financial Institution, a non-banking financial institution, a housing finance company, or a microfinance institution.
Key features of interest waiver scheme:
1) The scheme mandates ex-gratia payment by way of crediting the difference between compound interest and simple interest for the period of six months — 1 March 2020- 31 August 2020.
2) The rate of interest will be as per the rate mentioned in the loan agreement, in the case of education, housing, automobile, personal, and consumer loans. The rate of interest will be as prevailing on 29 February.
3) In the case of credit card dues, the interest rate will be the weighted average lending rate (WALR) charged by the card issuer for transactions financed on an EMI basis from its customers from 1 March-31 August, it said. Penal interest and penalty for late payment will not be reckoned as part of the contracted rate or WALR.
4) The lenders must credit the difference between compound interest and simple interest to the eligible borrowers by 5 November.
5) For cash credit, simple interest will be calculated daily at the rate as of 29 February 2020. Compound interest will be calculated on monthly basis. The difference between the two will be a credit to the customer’s account.
Who will be eligible?
The scheme will be valid for borrowers who availed of the moratorium fully, partially, or not at all, as mentioned in the circular.
“While making the calculation, repayments in the loan account during the period to be reckoned will be ignored. This will make the approach of the lending institution uniform for all borrowers, irrespective of whether they have fully availed or partially availed or not availed of the moratorium...." the government notification said.
Any borrower who has maintained their account in standard state and has been making timely payment pre-COVID-19 is eligible for this credit, said Anil Pinapala, CEO, Vivify finance India private limited.
"For the customers who opted into moratorium they will be just required to pay the simple interest in their outstanding and any compounded interest will be waived by the financial institution," Pinapala added.
State Bank of India (SBI) will be the nodal agency under the present scheme and will receive funds from the government for settlement of claims of the lending institutions, the finance ministry said. Lenders have been asked to submit their claims for reimbursement by 15 December 2020.
“SBI shall evaluate the claims to ensure that they conform with this scheme’s guidelines, and shall furnish to the central government statements of claims found eligible and claims settled," it said.
The Centre may have to take a hit of ₹6,500 crores for the implementation of the scheme, a senior government official said