Government set November 5 as the deadline for banks to implement the waiver of 'interest on interest' scheme for six months
Mumbai: The Reserve Bank of India (RBI) on Tuesday directed all lenders to pay the difference between compound interest and simple interest for six months ending August 31, 2020 to the borrowers in specified loan accounts. The central bank’s notification has come after the government set November 5 as the deadline for banks to implement the waiver of 'interest on interest' scheme for six months.
“All lending institutions are advised to be guided by the provisions of the Scheme and take necessary action within the stipulated timeline,” said the RBI in the notification.
The government on October 23 had announced the scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts which mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020 to August 31, 2020 by respective lending institutions. 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.
The accounts should be standard as on February 29 and not under default 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.
Besides, those who did not opt for moratorium during the coronavirus lockdown will get an ex gratia payment or a cashback.
“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 ambiguity 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. The 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.