The government has announced guidelines for the exemption from compound interest, which was payable by borrowers who had opted for a moratorium on their equivalent monthly payments (EMI) for a period of six months between March and August 2020.
This will eliminate the interest-on-interest burden for all micro, small and medium-sized enterprise (MSME) and retail borrowers of up to Rs 2 crore, including those who did not opt for the Reserve Bank of the Reserve Bank’s payment moratorium. India (RBI) in March.
Here’s everything you need to know about the compound interest exemption scheme:
1. The scheme, according to the guidelines issued by the department of financial services, can be used by borrowers on specific loan accounts for a period from March 1 to August 31, 2020.
2. “Borrowers who have loan accounts with sanctioned limits and an outstanding amount that does not exceed 2 million rupees (total of all facilities with credit institutions) as of February 29 will be eligible for the scheme,” he said.
3. Home loans, education loans, credit card fees, auto loans, MSMEs, durable consumer loans, and consumer loans are covered by the plan.
4. Lending institutions must be a banking company, a public sector bank, a cooperative bank or a regional rural bank, an Indian financial institution, a non-bank finance company, a home finance company.
5. Credit institutions, according to the scheme, will credit the difference between compound interest and simple interest with respect to eligible borrowers in the respective accounts.
6. It will be for said period regardless of whether the borrower has fully or partially availed itself of the moratorium on repayment of the loan announced by the RBI on March 27, 2020.
7. The plan is applicable to those who did not avail themselves of the moratorium plan and continued with the repayment of loans.
8. Credit institutions will claim reimbursement from the Center after crediting the amount. The government will have to disburse Rs 6.5 billion for the plan’s implementation, according to reports.
9. The difference between compound interest and simple interest, according to the scheme, will be credited to the borrower’s loan account for the period between March 1 and August 31. The interest rate on which the calculation will be calculated will be that of February 29, 2020.
10. The government has directed lenders to credit the amount to eligible borrowers by November 5.
(With contributions from the agency)
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