Get All Access for $5/mo

Didn't Opt for Loan Moratorium? The Govt Will Reward You With a Cashback The government has waived compounded interest or interest-on-interest on loans for the period of 1 March 2020 to 31 August 2020

By Shipra Singh

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Pixabay

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.

Shipra Singh

Entrepreneur Staff

Freelance Journalist

News and Trends

Battery Smart Raises USD 65 Mn in Series B to Boost EV Battery Swapping Network

Orios Venture Partners achieves a 29x return with a strategic partial exit from Delhi-based EV startup, enhancing early-stage investment success.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Money & Finance

Avoid These 10 Mistakes Entrepreneurs Make with Money

Despite the challenging statistic that only 5% of startups survive beyond five years, common financial pitfalls often contribute to their failure. Through personal observation, I've identified the prevalent financial mistakes made by entrepreneurs.

Growing a Business

How Visionary Leaders Transform Curiosity Into Groundbreaking Ideas

Lee Brian Schrager, founder of the South Beach Wine & Food Festival, discusses the spark that launched FoodieCon, his best practices for running popular food events, and why all business owners need to adapt to social media trends.

Thought Leaders

4 Steps You Need to Follow to Make It Through Any Crisis With Your Company Intact

The steps we take before a crisis define our team's future resilience in the face of one. Here's what you need to do to prepare for a crisis of any kind at any time.

Leadership

How His Personal Battle With Cancer Inspired This Founder's Solution for Patient Care

On this episode of "The Founder CEO," Michael O'Neil, founder and CEO of GetWellNetwork, discusses his inspiring journey as a leader and the transformative role of AI in healthcare.