New Delhi: In what comes as good news for lakhs of people paying loan EMIs, banks and lenders will refund the ‘interest on interest’ charged to the customers during the moratorium period. This means if you have a loan with banks like SBI, HDFC Bank, ICICI Bank or any lending institution defined in Clause 3, you will be getting a refund on ‘interest on interest’ for six months. All individual loans or small businesses with loans up to ₹2 crore are eligible for the scheme.
The Centre has informed the Supreme Court that lenders have been directed to credit in the accounts of eligible borrowers by November 5, the difference between compound interest and simple interest collected on loans of up to Rs 2 crore during the RBI’s loan moratorium scheme. The Ministry of Finance has said that after crediting this amount, the lending institutions would claim reimbursement from the Central government. In an affidavit filed in the apex court, the government has said that the ministry has issued a scheme as per which lending institutions would credit this amount in the accounts of borrowers for the 6-month loan moratorium period which was announced following the COVID-19 pandemic situation.
Interest waiver: Here’s how Banks will credit the interest on interest during loan moratorium
- Under the scheme, all lending institutions shall credit the difference between compound interest and simple interest in the respective accounts of eligible borrowers for the period between March 1, 2020, to August 31, 2020.
- The Central government has directed that all banks and lending institutions described in clause 3 thereof to implement the scheme and credit the amount calculated as per the scheme in the respective accounts of borrowers by November 5, 2020.
- The cashback will be offered to all loan customers regardless the borrowers have fully availed or partially availed or have not availed of the moratorium.
- The government will compensate the banks and lending institutions. The banks or lending institutions can claim the amount as reimbursement from the Government of India through the nodal agency – State Bank of India.
The affidavit was filed in the top court which is hearing a batch of pleas which have raised issues, including that of interest on interest’, concerning the loan moratorium period. It said the decision has been taken after careful consideration, keeping in mind the overall economic scenario, the nature of borrowers, impact on the economy and such other factors as a policy decision earmarking the above-referred class of borrowers for grant of benefits. Also Read – Unlock 6.0: Guidelines Issued in Sept to Remain Valid Till Nov-End, Lockdown to Continue in Containment Zones
On October 14, the Supreme Court had observed that the Centre should implement “as soon as possible” the interest waiver on loans of up to Rs 2 crore under the RBI’s moratorium scheme and had said that the common man’s Diwali is in the government’s hands.
The Kamath panel had made recommendations for 26 sectors that could be factored by lending institutions while finalising loan resolution plans and had said that banks could adopt a graded approach based on the severity of the coronavirus pandemic on a sector.
Initially, the RBI on March 27 had issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1, 2020, and May 31, 2020, due to the pandemic.