Interest waiver to be credited by 5 Nov2 min read . Updated: 26 Oct 2020, 08:19 AM IST
- The State Bank of India will receive funds from the government for settlement of claims of the lending institutions
Lenders will have to pay up by 5 November the interest on interest charged on loans of up to ₹2 crore for the six-month repayment moratorium period, the government said, 10 days after being pulled up by the Supreme Court.
The finance ministry announced the waiver on interest on interest on Saturday, along with details of implementation. To be sure, borrowers will still have to pay the simple interest on their loans.
The scheme for “grant of ex-gratia payment" is applicable for the six-month period of 1 March to 31 August. The money will be routed through lending institutions, the ministry said in a circular for banks and other lending institutions.
The lender has to credit the amount to the borrower’s account before 5 November, the deadline set by the Supreme Court for giving relief to consumers ahead of Diwali. Thereafter, lenders will have to claim reimbursement from the government by 15 December.
The benefit is applicable for loans for eight overarching 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 of 29 February.
The scheme will be valid for borrowers who availed the moratorium fully, partially or not at all.
“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," the circular said.
The following lending institutions fall under the scheme: private bank, public sector bank, cooperative bank, regional rural bank, an All India Financial Institution, a non-banking financial institution, housing finance company and micro finance institution.
The rate of interest will be 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 charged by the card issuer for transactions financed on an EMI basis.
The waiver follows a petition by a Gajendra Sharma, a borrower from Agra, seeking a waiver of interest on loans for the duration of the moratorium. On 14 October, the Supreme Court declined to grant the government a month’s time to implement the decision, saying it expects implementation by 2 November. “Common man’s Diwali is now in the hands of the government," the court said.
The State Bank of India will be the nodal agency under the scheme and will receive funds from the government for settlement of claims of the lending institutions, the guidelines said.