The union finance ministry has issued the detailed guidelines for the waiver of ‘interest on interest’ for loans that was announced earlier this month. The govt had decided to waive the compound interest on loans upto Rs 2 crore for a period of six months, from March to August.
It was announced that this compound interest waiver will be applicable to all borrowers un the approved categories, regardless of whether the moratorium was availed or not, which was announced by the Reserve Bank of India for the lockdown period.
Now according to the guidelines issued by the ministry, the interest waiver will be funded by the government in the form of ex-gratia payment. According to the “Scheme for grant
of ex-gratia payment of difference between compound interest and simple interest for six
months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020)” issued by the ministry, the following categories of loans will be eligible for this interest waiver, provided that the outstanding loan amount does not exceed Rs 2 crore.
- MSME loans
- Education loans
- Housing loans
- Consumer durable loans
- Credit card dues
- Automobile loans
- Personal loans to professionals
- Omsumption loans
The terms and conditions of the scheme include:
The guidelines say that any borrower whose aggregate of all facilities with lending institutions is more than Rs. 2 crore (sanctioned limits or outstanding amount) will not be eligible for the waiver under this scheme.
The loan should not have turned into NPA (non-performing asset) as on 29th February 2020.
The loan must be availed from a banking company, a Public Sector Bank, a Co-operative Bank, a Regional Rural Bank, an All India Financial Institution, a Non-Banking Financial Company or a Housing Finance Company. Loans from Micro Finance Institutions are also eligible, provided it is a are member of a Self-Regulatory Organisation (SRO) recognised by RBI.
This scheme is not linked with the EMI moratorium announced by RBI, the ex-gratia payment under the scheme will be made regardless whether the borrower had availed the moratorium facility or not.
For this payment, the difference between compound interest and simple interest on the loan for the period from 1 March to 31 August will be calculated, and the same amount will be credited to the account of the borrowers. The rate of interest as on 29th February will be considered for this calculation.
The amount will be credited to the accounts of eligible borrowers by 5 November 2020.
The respective lending institutions will credit the difference between simple and compound interests to the accounts of eligible borrowers. After the payments are made, the lending institutions will claim reimbursement from the central government. Such claims will have to be submitted with designated officers or cells at State Bank of India. The govt has directed the SBI to assign designated officers or cells for this purpose. These cells will function as the nodal agency under the scheme.
While calculating the interest, the outstanding loan as on 29/02/2020 will be considered, and any payment after that date will be ignored. This will ensure that the scheme will be uniform for all, regardless of whether the moratorium facility was availed or not.