Loan moratorium: Banks start depositing cashback into accounts of customers. (Representational pic)
Banks and non-banking financial institutions have started depositing the interest amount charged on interest on loans and credit card EMIs during the moratorium period (March to August). Customers have started receiving messages from banks and lending institutions about the credit of the difference between compound and simple interest collected on loans of up to Rs 2 crore during the six months.
The government recently approved a new scheme for ex gratia payment to borrowers. Under this scheme, banks and other institutions have been asked to reimburse the differential between compound and simple interests for the six-month loan moratorium period.
READ MORE: Banks to repay interest even if borrowers have not applied for moratorium
The government has extended the benefit for loans below Rs 2 crore in eight categories. The categories are MSMEs, education, housing, consumer durables, credit card, auto, personal, and consumption. According to the government notification, the benefit will be extended to borrowers irrespective of whether the moratorium was availed of or not.
Credit card users will also get the benefits of the scheme on dues. The interest rate will be the weighted average lending rate (WALR) charged by the bank. However, the penal interest and penalty for late payment will not be reckoned.
READ MORE: Loan moratorium: RBI urges SC to lift interim order banning declaration of NPAs
The Reserve Bank of India had in March announced a moratorium as part of measures to mitigate economic hardships caused by the coronavirus-induced lockdown in the country. Banks and non-banking financial institutions charged interest on interest for deferred loan payment installments. The matter reached the Supreme Court which ruled that there is "no merit in charging interest on interest" for deferred EMIs and asked the government to interfere in the matter.
The government then submitted that it will waive 'interest on interest' charges on loans up to Rs 2 crore for six months.
The lending institutions after crediting the amount will claim the reimbursement from the Central government. All banks and NBFCs are covered under the scheme. According to Crisil's analysis, the scheme will cost Rs 7,500 crore to the exchequer.
