Guidelines to waive off “interest on interest” during moratorium

The pandemic COVID-19 has struck at the roots of most sectors and had stalled the livelihoods of almost everyone, especially those in the unorganized sector. To fund their businesses, many individuals take loans and the lenders charge interest and failing that “interest on interest” is charged. But the overwhelming reality of the pandemic could not be brushed aside and the government went ahead and proposed a waiver for a six-month period on “interest on interest”. The issue was handled in the Supreme Court, the apex court ruled in the favor of the borrowers though did not ignore the financial burden the same would put on the lenders. The Finance Ministry is doing its duties and has released guidelines for the implementation of the order decided by the government.

In the festival gift to borrowers, the Finance Ministry on Wednesday approved guidelines for a scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months of loans up to Rs 2 crore. As per the operational guidelines issued by Department of Financial Services, the scheme can be availed by borrowers in specified loan accounts for a period from March 1 to August 31, 2020. Borrowers who have loan accounts having sanctioned limits and outstanding amount of not exceeding Rs 2 crore (aggregate of all facilities with lending institutions) as on February 29 shall be eligible for the scheme. The government has directed lending institutions to credit ‘interest on interest’ charged from borrowers for loans up to Rs 2 crore in the six-month moratorium period to provide relief to takers of loans for home, education, automobiles, consumer durables, micro, small and medium enterprises (MSMEs) and credit card dues.

“Any borrower whose aggregate of all facilities with lending institution is more than Rs 2 crore (sanctioned limit or outstanding amount) will not be eligible for ex-gratia payment under the scheme,” it said. It is also necessary that the borrower’s account must not be a non-performing asset (NPA) as on February 29, 2020, it added. Banks and lending institutions, after crediting the amount to the accounts of eligible borrowers, will claim the same from the Central government. The government is expected to bear about Rs 6,500 crore on this account. On March 27, the Reserve Bank of India (RBI) had announced a three-month moratorium on term loans from March 1 to enable borrowers to tide over the economic fallout of the Covid-19 pandemic. On May 22, it extended the moratorium period by another three months until August 31, 2020.