Didn't Opt for Loan Moratorium? The Govt Will Reward You With a Cashback
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In what is being hailed as a relief to borrowers ahead of the festive season, the government has waived compounded interest or interest-on-interest on loans for the period of 1 March 2020 to 31 August 2020.
Starting March 1, the Reserve Bank of India had offered a six-month moratorium on repayment of term and working capital loans to mitigate the economic impact of the Covid-19 pandemic on borrowers. However, the moratorium was not a repayment holiday and the banks continued to accrue interest on the skipped installments. After this was challenged in the Supreme Court, the apex court directed the government to waive the compound interest on the loans saying the common man's Diwali is in the hands of the government and the banks.
As per the guidelines issued by the government, any borrower with aggregate loan amount up to INR 2 crore and irrespective of whether she has availed the loan moratorium or not or availed it partially is eligible for the waiver scheme.
“While making the calculation, repayments in the loan account during the period to be reckoned will be ignored. This will make the approach of the lending institution uniform for all borrowers, irrespective of whether they have fully availed or partially availed or not availed of the moratorium...." the government notification said.
Those borrowers who did not avail the loan moratorium and paid their EMIs on time will get a cashback from their lender equal to the sum of compound interest minus the simple interest.
Entrepreneur India answers all your questions related to how the waiver scheme will work for you.
Which Loans Are Eligible for the Waiver?
The government has identified eight categories of loans under the waiver scheme.
- Education loans
- Consumer durable loans
- MSME loans
- Housing loans
- Personal loans
- Auto loans
- Credit card bills
- Consumption loans
The loans must only be taken from a recognised bank, non-banking financial institution (NBFC) or housing finance company (HFC).
The only condition set by the government is that the loan should not be a non-performing asset (NPA) as on February 29, 2020. A loan is typically announced an NPA when principal or interest component is not serviced for 90 days.
How Much Cash Back Will I Get?
The lender will arrive at the amount by subtracting the compound interest from the simple interest for the March-April period.
For calculation purpose, the interest rate will be the rate mentioned in the loan agreement.
As for credit card dues, the rate of interest will be the weighted average lending rate (WALR). Credit card issuers charge differential rate to different customers depending on a variety of factors. RBI has a formula for WALR that the credit card issuers will use to arrive at a common interest rate for all its customers.
It should be noted that the waiver doesn’t mean that you don’t have to pay the interest for this period at all. It only gives you relief from the compound interest for these six months.
How Should I Apply for the Cash Back?
You don’t need to furnish any documents or approach your lending institution asking for the payment.
The ex-gratia payment or cash back will be calculated and credited to all the eligible borrower’s bank accounts by November 5.
In case you have transferred your loan to another bank after August 30, you should approach your previous loan provider to credit the ex-gratia amount in your bank account.