Finance Ministry : Centre rolls out scheme for interest waiver on small loans

Centre rolls out scheme for interest waiver on small loans

New Delhi, Oct 24 : The Finance Ministry has announced a scheme for ex-gratia payment of difference between interest for the designated class of borrowers to provide relief in times of Covid-19 pandemic.

The scheme issued by the Department of Financial Services provides the difference between compound interest and simple interest for six months of loans up to Rs two crore.

The scheme can be availed by designated class of borrowers from March 1 to August 31, 2020.

Those having loan amounts above Rs two crore are not eligible. “Borrowers who have loan accounts having sanctioned limits and outstanding amount of not exceeding Rs two crore (aggregate of all facilities with lending institutions) as on February 29 shall be eligible for the scheme,” it said.

The class of borrowers included are housing loan, education loans, credit card dues, auto loans, MSME loans, consumer durable loans and consumption loans.

As per the scheme, the lending institutions shall credit the difference between compound interest and simple interest with regard to the eligible borrowers in respective accounts for the said period irrespective of whether the borrower fully or partially availed the moratorium on repayment of loan announced by the RBI on March 27, 2020.

The lending institution after crediting the amount will claim the reimbursement from the Central government. All banks and NBFCs are covered under the scheme.

The government has clarified that the payment does not constitute a legal, contractual or equitable liability of the Central government and is only an ex-gratia payment to borrowers in view of the Covid-19 pandemic.

In a major relief to thousands of individuals and MSME borrowers, the Centre in an affidavit had informed the Supreme Court that it has taken a decision to waive “interest on interest” on loans up to Rs two crore during the six-month moratorium period.

The affidavit said the only solution is that the government should bear the burden resulting from waiver of compound interest.

“After careful consideration and weighing all possible options, the respondent Union of India has decided to continue the tradition of handholding the small borrowers”, said the Centre. The categories of loans up to Rs two crore include: MSME loans, education loans, housing loans, consumer durable loans, credit card dues, auto loans, personal loans to professional and consumption loans.

The Centre said it is impossible for the banks to bear the burden resulting from waiver of compound interest without passing on the financial impact to the depositors or affecting their net worth adversely, which would not be in larger public interest.

The affidavit said: “The government, therefore, has decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers.”

IANS

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