The Ministry of Finance had on 23 October released guidelines on waiver of compound interest for certain categories of loans up to Rs 2 crore. The Reserve Bank of India (RBI) had, before this in March, offered a three-month moratorium on loans, enabling borrowers to defer repayments on EMIs and other loans. The RBI extended it by another three months till 31 August.
Then petitioners moved the Supreme Court, seeking a complete waiver of interest during the moratorium period. The apex court will resume hearing the pleas on 2 November.
The union government had agreed to waive “interest on interest” on loans up to Rs 2 crore taken by individuals and micro, small and medium enterprises (MSMEs) — in an affidavit issued earlier in October.
Compound interest waiver scheme
The government will grant eligible borrowers an ex-gratia payment of the difference between the compound interest and simple interest for the six-month moratorium period. This will cover loans where instalments were due from March 1 to August 31.
The payments will be made on or before 5 November, the Department of Financial Services said.
Why was the interest on interest waiver scheme introduced?
The government aimed at providing borrowers relief amid the economic impact of the COVID-19 pandemic by providing loan moratorium and waiver of compound interest.
Lawyers representing individual and corporate borrowers had sought relief with regard to accruing interest on the loans.
Who all are eligible
Loans up to Rs 2 crore in the following categories are eligible: MSME, education, credit card dues, housing, automobile, personal loans to professionals, consumer durable and consumption.
The loan should be standard and not a non-performing asset (NPA), as on 29 February.
The ex-gratia payment will be made irrespective of whether the borrower had availed of the moratorium partially or completely, and even if they had not opted for the moratorium.
The rate of interest as on 29 February will be taken into account during the calculation. If the interest rate for the loan has changed after that, it will not be reckoned for the scheme.
Borrowings by non-banking finance companies (NBFCs) and housing finance companies (HFCs) will qualify under the scheme too.