BackLoan moratorium: Finance ministry issues guidelines to implement interest waiver
The lender has to credit the amount to the account of the borrower on or before 5 November, giving relief to borrowers ahead of Diwali
PremiumNEW DELHI : The finance ministry on Saturday announced the details of the implementation of the waiver of ‘interest on interest’ on loans of up to ₹2 crore for the six-month moratorium that was rolled out to mitigate the hardship of borrowers hit by the coronavirus pandemic.
The Centre approved the scheme for ‘grant of ex-gratia payment of difference between compound and simple interest to borrowers of specified loan accounts’ from March 1-August 31. The ‘ex-gratia payment’ or the benefit will have to be routed through lending institutions, the ministry said in a circular addressed to banks and other lending institutions on October 23.
The lender has to credit the amount to the account of the borrower on or before 5 November, giving relief to borrowers ahead of Diwali. Thereafter, lenders will have to claim reimbursement from the government by December 15.
The benefit will be extended for loans availed across eight categories: micro, small and medium enterprises (MSMEs), education, housing, consumer durables, credit card dues, automobile, personal and professional and consumption. The outstanding amount cannot exceed ₹2 crore, and should not be a non-performing asset (NPA) as on February 29, 2020. This means that the while interest on loan has not been waived but the amount that has to be credited to the borrower will be calculated using the difference between simple and compound interest.
The scheme will also be valid for borrowers who availed the moratorium fully, partially or not at all, as mentioned in the circular.
“Any borrower whose aggregate of all facilities with lending institutions is more than ₹2 crore (sanctioned limits or outstanding amount) will not be eligible for ex-gratia payment under this scheme," the circular said.
The lending institution has to be either a banking company, or a public sector bank, co-operative bank or a regional rural bank, or All India Financial Institution, a non-banking financial institution, housing finance company or a micro finance institution.
The rate of interest will be as per the rate mentioned in the loan agreement, in case of education, housing, automobile, personal and consumption loans. In case of credit card dues, the interest rate will be the weighted average lending rate (WALR) charged by the card issuer for transactions financed on an EMI basis from its customers during 1 March-31 August, it said.
The Centre may have to take a hit of ₹6,500 crore for the implementation of the scheme, a senior government official said.
State Bank of India (SBI) will be the nodal agency under the present scheme and will receive funds from the government for settlement of claims of the lending institutions, the guidelines said. “SBI shall evaluate the claims to ensure that they are in conformity with this scheme’s guidelines, and shall furnish to the central government statements of claims found eligible and claims settled," it said, adding that any grievance will be resolved through a designated cell at the SBI, in consultation with the finance ministry.
The development comes soon after the Supreme Court on October 14 pulled up the government for seeking a month’s time to waive interest on interest compounded on loans during the moratorium period, asking the Centre to implement its decision to waive the interest at the earliest. The case has been adjourned to 2 November.
“Common man’s Diwali is now in the hands of the government," the court had said.
The Reserve Bank of India (RBI) had in March allowed a three-month moratorium from paying EMIs and payment of all term loans due between 1 March and 31 May. It extended moratorium on term loans till 31 August amid the nationwide lockdown due to covid-19. Thereafter, petitioner Gajendra Sharma, a borrower from Agra, had submitted that no interest should be charged during the moratorium because people are facing ‘extreme hardship’.
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