In the wake of the coronavirus pandemic in the country, the Reserve Bank of India announced in March a moratorium on repayment for three months. Subsequently, the central bank extended the moratorium period until August 31. Later, a borrower from Agra filed a petition in the Supreme Court not to charge interest during the moratorium, considering the ‘extreme hardships’ people face during the pandemic.
The Center then approved the plan to “grant the ex gratia payment of the difference between compound and simple interest to borrowers of certain loan accounts” from March 1 to August 31.
The interest exemption scheme will apply to
The benefit will be extended to loans below ₹Rs 2 crore available in eight categories: 1) Micro, Small and Medium Enterprise (MSME) Loans, 2) Education Loans, 3) Housing Loans, 4) Consumer Durable Goods Loans, 5) Credit Card Fees credit, 6) Auto loans, 7) Personal and professional loans, 8) Consumer loans
The lending institution must be a banking company, a public sector bank, a cooperative bank or a regional rural bank, or an All India financial institution, a non-bank financial institution, a home finance company or a financial institution. microfinance.
Key Features of the Interest Waiver Scheme:
1) The plan requires ex gratia payment by paying the difference between compound interest and simple interest during the six-month period: from March 1, 2020 to August 31, 2020.
2) The interest rate will be that mentioned in the loan agreement, in the case of loans for education, housing, automobile, personal and consumer. The interest rate will be the one in force on February 29.
3) In the case of credit card installments, the interest rate will be the weighted average loan rate (WALR) charged by the card issuer for transactions financed on an EMI basis from its customers during March 1 as of August 31, he said. Penalty interest and late payment penalty will not be counted as part of the contracted rate or WALR.
4) Lenders must credit the difference between compound interest and simple interest to eligible borrowers by November 5.
5) For cash credit, simple interest will be calculated daily at the rate of February 29, 2020. Compound interest will be calculated monthly. The difference between the two will be credited to the customer’s account.
Who will be eligible?
The plan will also be valid for borrowers who availed themselves of the moratorium totally, partially or not at all, as mentioned in the circular.
“When doing the calculation, the repayments in the loan account during the period to be counted will be ignored. This will make the lender’s approach uniform for all borrowers, regardless of whether or not they have made full or partial use of the moratorium … “, the government’s notice said.
For borrowers
Any borrower who has kept their account in standard status and made timely payment before Covid is eligible for this credit, said Anil Pinapala, CEO of Vivifi finace india private limited.
“For clients who opted for the moratorium, they will only be required to pay the simple interest of their pending and the financial institution will waive any compound interest,” added Pinapala.
For Lenders
State Bank of India (SBI) will be the nodal agency under the current scheme and will receive funds from the government for the settlement of claims from lending institutions, according to the guidelines. Lenders have been asked to submit their repayment requests by December 15, 2020
“The SBI will evaluate claims to make sure they are in compliance with the guidelines of this scheme and will provide central government with declarations of claims that are deemed eligible and claims resolved,” he said.
The Center may have to take a hit from ₹6.5 billion rupees for the implementation of the scheme, said a senior government official.
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