COVID-19 loan relief: loan account must be healthy as of February 29
All banks and other lenders in the country will soon credit the difference between compound and simple interest on eligible loan repayments of up to Rs 2 crore due between March and August. The move is intended to help borrowers overcome financial difficulties caused by the coronavirus pandemic and related restrictions. This money will be reimbursed by the government to banks, according to a notification from the Reserve Bank of India on Tuesday. Relief credit on loan accounts will arrive days before Diwali as the country prepares for the current holiday season, usually the time for new purchases.
Who will benefit from this scheme?
The credit relief is intended for personal loans, for housing, education, automobiles and durable consumer goods, loans to micro, small and medium enterprises (MSMEs), as well as loans to micro, small and medium enterprises (MSMEs) and card fees credit, subject to certain conditions.
Lenders will credit the amount regardless of whether the borrower opted for the relief in whole or in part.
Giving these benefits to borrowers will reportedly cost the government Rs 6.5 billion, and banks will have to claim repayment before December 15.
The loan account must be in good standing as of February 29 and within the Rs 2 crore limit.
The plan also includes voluntary relief for eligible borrowers regardless of whether they have opted for relief from payments due within the six-month period.
In other words, even if you didn’t seek this relief from your bank or financier during the pandemic-related lockdown, you will still get the money in your loan account.
What is this amount and how much money will be credited to your account?
The RBI notification mentions the payment of the difference between simple interest and compound interest for the March-August period by credit institutions.
Compound interest, also known as interest on interest, is the interest accrued on the original loan for any late payments. Simply put, any late payment on a loan earns more interest under typical banking rules, a matter currently being debated in the Supreme Court with reference to the situation related to the pandemic.
This month, the high court ordered the government to grant loan relief to eligible borrowers “as soon as possible,” saying any delay in its implementation is not in the common man’s interest.
(Also read: “The Common Man’s Independence Day …”: little push from the superior court for loan relief before November 2)
The government was forced to reconsider its loan relief plan after the RBI allowed borrowers to postpone installments on their loans due between March and August, but also allowed banks to charge interest for such delays. That meant that the borrower could pay later, but at an additional cost.
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