In a major relief to borrowers amid a global pandemic, the Finance Ministry has issued guidelines for implementing a waiver of ‘interest on interest’ for six months. The payments will be made to individual borrowers and small businesses with loans of up to Rs 2 crore.
According to reports, the government may have to take a hit of Rs 7,000 crore for the implementation of the scheme.
In the wake of coronavirus pandemic in the country, the Reserve Bank of India had in March announced a moratorium on repayment of EMIs and credit card dues for three months. The central bank later extended the moratorium period till August 31.
In such a situation it was bound to arise that it would be an injustice to borrowers who paid their debt during the coronavirus pandemic. On Friday, the government announced that if a borrower did not take advantage of Moratorium and paid his instalments timely, they would be entitled for receiving a cashback from banks.
Under this, the government will pay an amount equal to the difference between the cumulative interest, ie the interest on interest and the simple interest, during the deferment granted for six months on a loan up to Rs 2 crore.
The benefit will be extended for loans below Rs 2 crore availed across eight categories: Micro, small and medium enterprises (MSMEs) loans, Education loans, Housing loans, Consumer durables loans, Credit card dues, Auto loans, Personal and professional and Consumption loans.
The waiver will be provided by all private and state-owned banks, cooperative banks, regional rural banks, housing finance companies and non-banking financial institutions. The rate of interest used to calculate the ex gratia amount will be based on the contracted rate specified for most loans.
The relief has been unveiled after the Supreme Court asked the government to come out with a relief on interest rates.