The Ministry of Finance has issued operational guidelines for implementation of the interest waiver scheme ahead of the hearing in the matter in the apex court on November 2.

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In a letter addressed to all lending institutions dated October 23, the Finance Ministry has outlined the “scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan categories.” This letter has been reviewed by CNBC-TV18.

As per the operational guidelines issued by Department of Financial Services, the interest waiver scheme can be availed by borrowers in specified loan accounts for loans up to Rs 2 crore during the period from March 1 to August 31, 2020. Lending institutions will credit the difference between compound interest and simple interest to the eligible borrowers in for the six-month period, irrespective of whether the borrower fully or partially availed the moratorium on repayment of the loan. Once the amount has been credited, lenders can claim reimbursement from the government latest by December 15, 2020.

Objective of Scheme

In view of the “unprecedented and extreme COVID-19 situation”, the government said that the idea is to grant ex-gratia (given or done as a gift or favour, not because there is a legal duty to do it) payment of difference between simple and compound interest for the period between March 1 to August 31, 2020 to borrowers in specified loan accounts.

Applicability

The scheme applies to all lending institutions, including all public and private banks, NBFCs, Housing Finance Companies, Co-operative Banks, Regional Rural Banks, All India Financial Institutions and National Housing Bank.

Eligibility Under Scheme

All borrowers with loans of upto Rs 2 crore in the specified categories as on February 29, 2020 are eligible under the scheme, the ministry said in its letter. The borrower’s accounts should be standard as on February 29, 2020 , i.e the loan should not be in the non performing asset (NPA) category. Further, the ex-gratia payment would be applicable to all eligible borrowers, irrespective of whether they availed moratorium.

Loan categories

The loan categories covered under the scheme include:

- MSME Loans

- Education Loans

- Housing Loans

- Consumer Durables Loans

- Credit card Loans

- Auto Loans

- Personal Loans to Professionals

- Consumption Loans

Period to be reckoned

The period to be reckoned for crediting of difference between the simple and compound interest is for a six month period from March 1, 2020 to August 3, 2020. For any accounts that were closed during these six months, the interest would be credit from March 1, 2020 until the date of closure of such an account, the government clarified.

Rate of Interest

1. For education, housing, auto, personal and consumption loans: As specified in loan agreement

2. For consumer durable loans: As specified in loan agreement. In case where no int is being charged on EMI for certain period, int to be applied at lenders’ base/MCLR rate

3. Credit Card Dues: Weighted Avg Lending Rate (WALR) charged by card issuer to be charged

4. MSME Loans: As specified in loan agreement. For cash credit/overdraft, contracted rate would apply. Basis of calculation would be as per prevailing rate on Feb 29

Implementation by Lenders & Reimbursement

Lending institutions will credit the difference between simple and compound interest to eligible borrowers for the six month period, irrespective of whether they availed the moratorium relief. Lenders will then have to claim the reimbursement from the government of India. The ministry has clarified that for the purpose of reimbursement from government, the compound interest will be reckoned on a monthly basis. Lending institutions can claim reimbursement latest by December 15, 2020, but only after crediting amount to borrowers. Further, all claims must be pre-audited by statutory auditor of lending institution.

First Published:Oct 24, 2020 12:09 PM IST