The Reserve Bank of India on Tuesday directed lenders to pay the difference of compound interest and simple interest for six months to the borrowers. The RBI's order comes days after the Centre set November 5 as a deadline for banks to implement waiver of 'interest on interest' scheme for six months.
Last week, the government had directed banks to credit the difference between compound interest and simple interest collected on loans of up to Rs 2 crore by November 5. "Under the scheme, all lending institutions shall credit the difference between compound interest and simple interest in the respective accounts of eligible borrowers for the period between March 1, 2020 to August 31, 2020," the government said.
"After crediting the said amount in the respective accounts of eligible borrowers, the lending institutions would claim reimbursement from the Central government through the nodal agency of State Bank of India as stipulated under the scheme," the Centre added.
The RBI had in March, after the outbreak of coronavirus, provided a moratorium on repayment of EMIs and credit card dues for three months. Later, the central bank extended that three-month period till August 31, 2020. However, there was confusion on whether interest on interest during this moratorium period would be charged. So, at that time, a petition was filed in this regard in the Supreme Court. An Agra-based petitioner requested the apex court that no interest should be charged during the moratorium.
Following this, the Supreme Court directed the Centre to implement interest waiver on loans of up to Rs 2 crore under the RBI moratorium scheme. As a result, the Centre gave its nod to the scheme to "grant of ex-gratia payment of difference between compound and simple interest to borrowers of specified loan accounts" from March 1 to August 31.
Besides, those who did not opt for moratorium during the coronavirus lockdown will get an ex gratia payment or a cashback.
Who is eligible for waiver of interest on interest scheme?
- The scheme will be valid for borrowers who availed the moratorium fully, partially or not at all. So, even if someone has not opted for loan moratorium, they will be eligible under this scheme.
- The loan amount should not exceed Rs 2 crore. The accounts should be standard as on February 29 which means that it should not be Non-Performing Asset (NPA).
- Loans like education loan, credit card dues, automobile loans, MSME loans, housing loans, personal loan, consumption loan and professional loans are eligible under this scheme.