The Centre on Friday released guidelines for waiving compound interest charged on loans of up to Rs 2 crore for a six-month moratorium period. The scheme is aimed at giving relief to borrowers amid the coronavirus crisis. It will be implemented by November 5.
The Ministry of Finance said in its order that lending institutions will first credit the difference between compound interest and simple interest on eligible loans up to Rs 2 crore, which the government will reimburse. The scheme can be availed by borrowers in specified loan accounts for a period ranging from March 1 to August 31, 2020.
“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 government said.
The loan relief scheme will cover personal loans, credit card dues, auto loans and housing and education loans. It is also meant for micro, small and medium enterprises loans. It will be applicable irrespective of whether or not the borrower availed the moratorium.
The Centre will have to spend Rs 6,500 crore for the implementation of the scheme, PTI reported, citing unidentified officials.
On October 14, the Supreme Court had refused to allow the Centre a month’s time to implement the interest waiver scheme. It asked why the Centre should take such a long time to implement a decision already taken, and directed that the execution of waiver should be done by November 2.
“The common man’s Diwali is now in government’s hands,” the top court had said. “The common people are worried. We are concerned with people with loan up to Rs 2 crore.”
The Centre had agreed to the waiver on October 3. In August, it had said the loan moratorium scheme can be extended by a period of two years after the top court had criticised the Centre for hiding behind the Reserve Bank of India without making its stand clear on the loan moratorium.
On May 23, it said that banks can extend the moratorium until August 31. However, the RBI had said it would be imprudent to go for a forced waiver of interest, risking the financial viability of the banks it was mandated to regulate and putting the interests of the depositors in jeopardy.
Considering the economic impact of the lockdown imposed to fight the coronavirus crisis, the RBI had on March 27 said that banks would be allowed to grant a moratorium of three months on payment of all installments due between March 1 and May 31.