News of major relief to borrowers finally after a global pandemic. The finance ministry has issued the guidelines to implement an interest waiver or the waiver of ‘interest on interest’ for the next six months. The payments will be made to small businesses and individual borrowers with loans of ₹2 crores or less. As soon as Coronavirus broke in India, the Reserve Bank of India had in March announced a moratorium on payments of credit cards and EMIs for three months. The bank later extended the period of the moratorium till 31 August.
A borrower In Agra, a borrower filed a petition in the Supreme Court. He said that no interest should be charged during the moratorium. He said that the bank should consider the ‘extreme hardship’ faced by many during the pandemic. The Centre after that approved the scheme to ‘grant of ex-gratia payment of the difference between compound and simple interest to borrowers of specified loan accounts’ which started from 1 March till 31 August.
The interest waiver scheme will apply to:
The benefit would be extended for loans below ₹2 crores for eight categories:
- Micro, small and medium enterprises (MSMEs) loans
- Education loans
- Housing loans
- Consumer durables loans
- Credit card dues
- Auto loans
- Personal and professional
- Consumption loans
The lending institution has to be a public sector bank either a banking company, or 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:
- 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.
- The interest rate will depend on the loan agreement, in the case of education, housing, automobile, personal, and consumer loans.
- In the case of credit card dues, the interest rate will be WALR charged by the card issuer for transactions financed on an EMI basis. Penal interest and penalty amount for late payment would not be reckoned as WALR or part of the contracted rate.
- The lenders should credit the difference of compound and simple interest to the eligible borrowers by 5th November of the current year.
- For cash credit, simple interest on a daily basis would be at the rate issued. Compound interest would be calculated on monthly basis. The difference between these two will be a credit to the account of the customer.