Govt waives interest on interest for loans up to Rs 2 crore

Banks charging interest on interest was challenged in the Supreme Court

In a major relief to borrowers amid Covid-19, the Centre on Saturday asked banks to credit 'interest on interest' charged for loans up to Rs 2 crore in the six-month moratorium period between March and August.

The moves will benefit those who took homes loans for home, education, automobiles, consumer durables, micro, small and medium enterprises (MSMEs) and credit card dues.

The scheme will be applicable irrespective of whether a borrower in the specified category took full moratorium on loans or took it partially or did not take it at all.

Banks and lending institutions, after crediting the amount to the accounts of eligible borrowers, have been asked to claim the amount from the Central government. The government is expected to bear about Rs 6,500 crore on this account.

The Reserve Bank of India (RBI) had offered a moratorium on repayments over these six months to help lessen the impact of the pandemic, but banks continued to accrue compound interest over this period.

This was challenged in the Supreme Court. Thereafter, the government came up with the scheme to waive compound interest for loans below Rs 2 crore.

Eight categories of loans have been identified for the purpose which should not have turned non-performing as on February 29, 2020. They are MSME, housing, education, loans for consumer durables, credit card loans, auto loans, personal loans to professionals and consumption loans. The scheme is applicable to banks, NBFCs and housing finance companies.

The rate of interest will be as per the rate mentioned in the loan agreement in case of education, housing, automobile, personal and consumption loans.

The SBI will act as the nodal agency for the government for settlement of claims. Lenders have also been asked to set up a grievance redressal for the scheme.

Hearing the matter last week, the Supreme Court had said it was concerned about how the benefit of interest waiver would be given to borrowers. "Something concrete has to be done," a bench headed by Justice Ashok Bhushan had said, adding that the benefits of waivers to borrowers of loans up to Rs 2 crore must be implemented as soon as possible.

The top court told the advocates appearing for the Centre and banks that "Diwali is in your hand".