The Reserve Bank today asked all credit institutions, including non-bank financial companies, to implement the interest exemption on interest for loans up to ₹2 crore for the six-month moratorium period beginning March 1, 2020. The Center has also informed the Supreme Court that lenders have been instructed to credit the accounts of eligible borrowers by November 5, 2020. difference between compound interest and simple interest charged on loans up to ₹2 crore during the RBI loan default plan.
Here are 10 things to know:
1) Last week, the government had issued the operational guidelines in the context of the Supreme Court’s direction to implement the interest exemption scheme.
2) The scheme requires ex gratia payments to certain categories of borrowers through the payment of the difference between simple interest and compound interest for the period between March 1, 2020 and August 31, 2020 by the respective credit institutions. The RBI had announced a moratorium on debt repayment for six months from March 1, 2020 to help companies and individuals overcome financial problems due to the interruption of normal business activities.
3) Home loans, education loans, credit card fees, auto loans, MSMEs, durable consumer loans and consumer loans are covered by the scheme.
4) The scheme is also applicable to those who did not avail themselves of the moratorium scheme and continued with the repayment of loans.
5) Credit institutions after crediting the amount will claim reimbursement from the central government.
6) The rating agency Crisil estimates that the scheme will cost the government ₹Rs 7.5 billion and 75% of borrowers will benefit from interest on interest for small loans.
7) “CRISIL’s analysis shows a full interest exemption (including interest on interest) for eligible loans up to ₹2 crore would have meant an amazing ~ ₹Impact of Rs 1.5 million lakh. This could have posed significant challenges for both the government and the financial sector. The interest-only-on-interest exemption will have a much milder and more manageable impact, “said Krishnan Sitaraman, senior director at CRISIL Ratings.
8) To make use of this exemption of interest on interest, the account must be standard as of February 29, 2020. It must not be a non-performing asset (NPA) as of that date.
9) From the borrower’s perspective, the benefit depends on the loan amount and the interest rate.
(Read: How Much Will You Benefit From The Loan Interest Waiver – Here Are The Numbers)
10) The benefit would be relatively higher for those who have benefited from higher-yielding loans, Crisil said in a note. Consequently, borrowers of unsecured loans, microloans and for gold will benefit more than those who had taken out home loans.
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