Giving borrowers a major relief this festival season, the finance ministry issued guidelines for implementing a waiver of 'interest on interest' for six months.
The six months in question are from the beginning of the COVID-19 pandemic hit, from March 1, to August 31. All payment will default to normal starting the September interest and payment windows.
"The Government of India has announced the Scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020) (the ‘Scheme’) on 23 October 2020, which mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020 to August 31, 2020 by respective lending institutions," the Reserve Bank of India (RBI) stated.
This benefit will be extended for loans below Rs 2 crore that can be availed across eight categories: 1) Micro, small and medium enterprises (MSMEs) loans, 2) Education loans, 3) Housing loans, 4) Consumer durables loans, 5) Credit card dues, 6) Auto loans, 7) Personal and professional loans, 8) Consumption loans.
Summary of newly-instituted rules
Here's a quick run-down of this interest scheme waiver that credit card users must know.
-- According to the ministry, the interest rate, in the case of credit cards, will be the weighted average lending rate (WALR) charged by the card issuer for transactions financed on an EMI basis from its customers during 1 March to 31 August.
--Penal interest and penalty for late payment will not be reckoned as part of the contracted rate or WALR.
--The lenders must credit the difference between compound interest and simple interest to the eligible borrowers by 5 November.
--The lending institutions will have to be 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.
--The ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.
As for who can avail the scheme, the ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply, LiveMint reported.
This means that those who have not availed the moratorium can also benefit from the scheme.
“While making the calculation, repayments in the loan account during the period to be reckoned will be ignored. This will make the approach of the lending institution uniform for all borrowers, irrespective of whether they have fully availed or partially availed or not availed of the moratorium," the government notification said.