Loan interest waiver guidelines - Crictical Applications' Highlights:
1. The process of crediting to be completed by Nov 5, 2020
2. Condition is account should not be NPA as on February 29, 2020
3. Accounts that have been closed during the period will also get the benefit from 1st March 2020 till the closing of the account
4. Under the scheme govt will pay the difference between compound interest and simple interest for the 6 months of moratorium period
5. Lending institutions will first credit the amount in borrowers account and then take claim from govt by Dec 15, 2020

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With Dussehra looming and Diwali not so far away, Centre has presented a massive gift to borrowers that will put the smile back on their worried faces. The Finance Ministry has issued guidelines for a scheme for grant of ex-gratia payment. This scheme grants ex-gratia payment of the difference between compound interest and simple interest for six months of loans up to Rs 2 crore.

"Borrowers who have loan accounts having sanctioned limits and outstanding amount of not exceeding Rs 2 crore (aggregate of all facilities with lending institutions) as on February 29 shall be eligible for the scheme," the official note said. The scheme can be availed by borrowers in specified loan accounts for a period from March 1 to August 31, 2020.

Housing loan, education loans, credit card dues, auto loans, MSME loans, consumer durable loans and consumption loans are covered under the scheme.

According to sources, the government will have to shell out Rs 6,500 crore for the implementation of the scheme. These guidelines have been issued after the Supreme Court directed the Centre to implement "as soon as possible" interest waiver on loans of up to Rs 2 crore under the RBI moratorium scheme in view of the COVID-19 pandemic.

As per the scheme, the lending institutions have been ordered to 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.

Notably, the scheme is applicable on those who have not availed the moratorium scheme and continued with the repayment of loans.

Hearing the matter on October 14, the Supreme Court observed that it was concerned about how the benefit of interest waiver would be given to borrowers and said the Centre has taken a "welcome decision" by taking note of plight of the common man, but authorities have not issued any order in this regard.

"Something concrete has to be done," a bench headed by Justice Ashok Bhushan had said, adding, "Benefits of waivers to borrowers up to Rs 2 crore must be implemented as soon as possible."

The top court, which posted the matter for hearing on November 2, told the advocates appearing for the Centre and banks that "Diwali is in your hand".

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The Centre recently told the apex court that going any further than the fiscal policy decisions already taken, such as waiver of compound interest charged on loans of up to Rs 2 crore for six months moratorium period, may be "detrimental" to the overall economic scenario, the national economy and banks may not take "inevitable financial constraints".