Centre’s Diwali gift: Waives interest on interest for all loans up to Rs 2 crore; check details

In what can be termed as a relief for borrowers just ahead of the festive season, the Ministry of Finance has announced a waiver of interest on interest charged for loans up to Rs 2 crore. The Department of Financial Services of the ministry on Friday issued a circular that laid the guidelines for financial institutions on granting ex-gratia payment of difference between compound interest and simple interest for six months to borrowers. All borrowers, whether they availed the moratorium or not will be eligible for the relief, according to the ministry circular.

Eligibility criteria

The ministry has said that all borrowers, who have loan accounts having sanctioned limit and outstanding credit not exceeding Rs 2 crore, will be eligible under the scheme for the period between March 1 to August 31, 2020. The scheme will entertain MSME loans, Education loans, housing loans, consumer durable loans, credit card dues, automobile loans, and consumption loans. Loans exceeding Rs 2 crore will not be eligible under the scheme. According to various reports, the move is expected to cost the government of India Rs 6,500 crore. 

Another requirement for the eligibility under the scheme states that the loan should not be a non-performing asset (NPA) as on February 29, 2020. The lending institutions that will be considered under the scheme include 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.

How will it work?

“The lending institution shall credit the difference between compound interest and simple interest with regard to the eligible borrowers in respective accounts of such borrowers for the period to be reckoned, irrespective of whether such borrowers have fully availed or partially availed or not availed of the moratorium on repayment of the irrespective loans as announced by the RBI,” the circular reads. The lending institutions, after crediting the said amount to eligible borrowers, claim reimbursement from the central government.

The move comes after the Supreme Court, earlier this month, told the government that the common man’s Diwali is in its hands this year. The Supreme Court had welcomed the Centre’s decision of waiving interest on interest but was not pleased with the lack of action on that front. The bench had said that waivers to borrowers of up to Rs  2 crore must be implemented as soon as possible. The next hearing of the matter will be on November 2.