Loan moratorium: How can you avail interest-on-interest waiver? All you need to know

Centre is refunding the interest on loans that accumulated during moratorium period

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Even a week after the finance ministry approved 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, borrowers are still wondering how they will benefit from the scheme.

The scheme is aimed at refunding the compound interest on loans that accumulated during the six-month moratorium period from March 1, 2020 to August 31, 2020. The “scheme for grant of ex-gratia payment of the difference between compound interest and simple interest” for six months will be credited to eligible borrowers in specified loan accounts by banks, who can then lodge their expense bills with the government by December 15.

It is applicable to all lending institutions, including a banking company, a public sector bank, co-operative bank, regional bank, all India financial institution, non-banking financial company or a housing finance company registered with the Reserve Bank of India or National Housing Bank.

Here are the major questions answered about the grant of ex-gratia payment of the interest of interest, as addressed by the finance ministry:

Who is eligible?

Borrowers with MSME loans, education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans and consumption loans will be eligible, provided that the loan accounts have sanctioned limits and outstanding amount not exceeding Rs 2 crore as on February 29, 2020.

However, crop and tractor loans come under agriculture and allied activities loans and are not part of the eight segments or classes eligible under the scheme. At the same time, automobile loans, including two-wheeler loans, are eligible under the scheme. 

Any borrower whose aggregate of all facilities with lending institutions is more than Rs 2 crore (sanctioned limits or outstanding amount) will not be eligible for ex-gratia payment under the scheme.

It may be noted that loans declared as non-performing assets as on February 29, 2020 are not eligible under the scheme.

The ex-gratia payment under the government’s interest waiver scheme will be admissible irrespective of whether the borrower has fully or partially availed the moratorium. Those who had not availed the moratorium will also get the benefit of the scheme.



What is the time period?

The period of reckoning for crediting the difference between compound and simple interest by lending institutions would be from March 1, 2020 to August 31, 2020. For accounts closed during the said period, the period of crediting would also be from March 1, 2020 but restricted to the date of closure of the loan account.

As mentioned earlier, banks and other financial institutions will have to credit the account eligible borrowers on or before November 5, 2020.

What are the main features of the ex-gratia to borrowers scheme?

The main features/highlights of the scheme are as under:

a. Loan accounts with sanctioned limits and outstanding not exceeding Rs 2 crore (aggregate of all facilities with all the lending institutions) as on February 29. 

b. Loan accounts should be standard in the books of the lending institutions as on February 29.

c. The relief shall cover the following segments – MSME Loans, education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professionals and consumption loans.

d. The period reckoned for refund shall be from March 1, 2020 to August 31, 2020, i.e. 6-month period/184 days.

Do I have to apply for the relief?

No. The ex gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.

Who will finalise the list of eligible accounts?

Individual banks/lending institutions will finalise the list of eligible borrower for the relief based on the government's guidelines.

How will the lending institution assess whether a borrower has aggregate loan facilities upto Rs 2 crore from the banking system?

Lending institutions are to assess this on the basis of information available with them as well as information accessible from credit bureaus.

Will my non-fund based limits as on February 29 be included for arriving at the eligibility amount of up to Rs 2 crore?

No. Non-fund based limits will not be included for arriving at the eligibility. 

Whether accounts categorised as SMA-0, SMA-1 and SMA-2 are eligible to avail the benefit of the package?

Yes, the accounts classified as SMA-0, SMA-1 and SMA-2 as on February 29 are eligible for the relief package.

Are NPA accounts eligible for the relief package?

No. The loan should not be a “non-performing asset (NPA) as on February 29.

Whether borrowers who have opted for deferment of interest and instalment under the RBI COVID-19 relief package earlier are eligible to avail the benefit under the above relief?

Yes. The package will be available for eligible borrowers irrespective of whether they have availed or partially availed or not availed the moratorium on repayment announced by the RBI on March 27 and extended on May 23.

Whether “partly disbursed loans” are covered under the relief package?

Yes, provided that the sanctioned and outstanding amounts do not exceed Rs 2 crore. The outstanding as on February 29 shall be the reference amount for calculating the differential interest amount.

Can a borrower who has closed the loan account/s between March 1 and August 31, 2020 avail the benefit of the scheme?

Yes. Such borrowers are eligible for refund of differential interest from March 1, up to the date of closure of account (not later than August 31).

In which of my accounts will the differential amount be credited?

The differential amount will be credited to the respective loan account(s).

If I have already closed my loan account after March 1, how will the differential amount be paid to me?

It will be credited to your savings/current account and if you do not maintain any such account with the lending institution, you can advise the lending institution the details of the account in other banks where the amount can be credited/remitted to.

Which rate of interest shall be considered for calculating the package, i.e. RoI (%) considered at the time of sanction or RoI (%) as on February 29?

a. In respect of education loans, housing loans, automobile loans, personal loans to professionals and consumption loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/documentation applicable as on February 29.

b. In respect of consumer durable loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/documentation. In case where no interest is being charged on equated monthly instalments for a specified period, for the purpose of relief, interest may be applied at MCLR/base rate as the case may be.

c. MSME:

In respect of term loans/demand loan, the rate of interest for the purpose of calculating the differential will be the contracted rate as specified in the loan agreements/documentation applicable as on February 29. In respect of cash credit/ overdraft, the rate of interest for the purpose of calculating the differential shall be the rate of interest prevailing as on February 29.

d. Credit cards

Eligibility: The credit card outstanding (i.e. settled amount) in the account as on February 29 will be the reference amount. Any debits/credits which are not reflected in the account will not be eligible/will be excluded.

RoI (%): The rate of interest shall be the Weighted Average Lending Rate (WALR) charged by the card issuers for transactions financed on EMI basis from its customers during the period from March 1 to August 31.

Will I be eligible for relief if my credit card balance is in “credit” as on February 29?

No. Ex-gratia will not be paid on those credit cards where balance is in “credit” as on February 29.

What will be the treatment of penal interest/penalties while arriving at the rate of interest?

The contracted rate/interest rate prevailing as on February 29 which is considered for calculating the interest differential will exclude any penalties or any penal rate of interest applied in the account. 

What will be the treatment for the repayments/credits made in term loan/demand loan during the period from March 1 to August 31?

The outstanding as on February 29 will be the reference amount for calculating the differential. Any repayment/credits subsequent from March 1–August 31 shall be ignored for the purpose of calculation.

How will the interest be calculated for cash credit/overdraft accounts?

Simple interest for the period will be calculated based on daily outstanding at end of the day at the rate of interest prevailing as on February 29. Compounding of interest shall be at monthly rests. 

How can I flag my grievances related to the relief package?

The borrowers shall register his/her grievance through the link available in the lending institutions’ official site or visit the home branch and submit his/her grievance.

A salaried employee/self-employed professional had availed of a personal loan from a bank which has some amount outstanding as on February 29. Is the loan eligible for ex-gratia payment under the scheme?

Yes. Loans for consumption purposes (e.g., social ceremonies, etc.) are also eligible for coverage under the scheme, besides other specified categories of loans like consumer durables, automobiles, education, credit card dues, housing and personal loans to professionals. However, loans against fixed deposits [including Foreign Currency Non-Resident (Bank) {(FCNR(B)} account, bonds and other interest bearing instruments], and shares etc, and loans given for investment in financial assets (shares, debentures etc.) are not eligible for coverage under the scheme.



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