In a major relief to borrowers this festive season, the finance ministry issued guidelines for implementing a waiver of ‘interest on interest’ for six months. “The Government of India has announced the Scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020) (the ‘Scheme’) on 23 October 2020, which mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020, to August 31, 2020, by respective lending institutions,” the Reserve Bank of India stated.
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.
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, Vivifi finance India private limited.
Interest waiver scheme: Key rules credit card users must know
1) 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 to 31 August, the ministry said.
2) Penal interest and penalty for late payment will not be reckoned as part of the contracted rate or WALR.
3) The lending institution has to be either a banking company, or a public sector bank, co-operative bank or a regional rural bank, or All India Financial Institution, a non-banking financial institution, housing finance company, or a microfinance institution.
4) The lenders must credit the difference between compound interest and simple interest to the eligible borrowers by 5 November.
5) The ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.
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. So those who have not opted for the moratorium scheme offered by the Reserve Bank of India will also get the benefit of the interest waiver scheme.
“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.