ET Explains: Everything you need to know about the new moratorium interest relief facility

The Finance ministry on Tuesday made available all relevant info on its moratorium relief plan for borrowers. Under the plan, ex-gratia payment will be provided to eligible borrowers to make up for the difference between simple and compound interest paid during RBI’s moratorium period.

The government had announced last week that the difference between the compound interest and simple interest to all borrowers with loans up to Rs 2 crore for the six-month period will be reimbursed.

The facility is for borrowers with outstanding loans — as of February 29, 2020 — of less than Rs 2 crore, regardless of whether or not they availed the moratorium. Here are the key things to know about the plan:

Why this relief
During the moratorium, borrower paid interest on the interest, or compound interest. This is because interest due every month got added to the total loan amount.

Then, interest was charged on that higher principal for successive months, which means borrowers had to pay interest on the interest that got accumulated during the period.

How to apply for it
Borrowers need not apply for the loan interest waiver scheme. The ex-gratia amount will be automatically credited into the accounts of those eligible.

Who all are eligible
All borrowers of loans up to Rs 2 crore. Even those who did not avail of moratorium (or partially availed) will get payment.

The moratorium relief was only available to those who did not have overdue payments. But this ex-gratia relief is available to even special mention accounts (those that are overdue for less than 90 days, but are not NPAs)

When will a borrower get to avail it?
To ensure effective and timely implementation, the government has asked lenders to credit the amount to eligible borrowers latest by November 05, 2020.

Lenders have been told to apply for reimbursement by December 15, 2020. When they will be reimbursed, remains unclear.

Which loans are eligible
The types of loans eligible for relief include: MSME loans, education loans, home loans, consumer durable loans, car loans, credit card dues, consumption loans, personal loans to professionals.

How will the relief amount be calculated?
This relief amount will be the difference between compound interest and simple interest over six months (March 1, 2020 to August 31, 2020). It is basically a compensation for the interest-on-interest levied by lenders during the period.

The interest differential will be calculated based on the rate of interest as on February 29. It won’t include any penalties or any penal rate of interest applicable on the loan. It will be credited into the loan account of the borrower.

For the purpose of calculating the Rs 2-crore limit, all borrowings by an inpidual will be taken into account, and not just a single loan. That means the limit is based on a borrower’s aggregate loans across banks or other lenders (as on February 29).

What all are NOT eligible
Loans taken against fixed deposits are not eligible for this ex-gratia relief. Bonds and shares will also not be eligible.

Loans against securities won’t be eligible for relief as these are used by traders to take leveraged positions in the market, bankers said.

What of credit card outstanding?
The plan covers outstanding amounts on credit cards. However, those credit card holders with a card balance in ‘credit’ won’t be eligible, according to the FAQs. (A ‘credit’ balance pertains to instances of overpayment, which means the bank owes the card holder money, not the other way round.)

For credit card holders, the amount will be calculated based on the rate charged by the bank for breaking outstandings down into EMIs. It will not be calculated based on the rate that banks charge on those who revolve their balances.

What of the accounts that closed during moratorium?
Loan accounts that were closed during the six-month period will also be eligible for the relief. In such cases, the interest differential will be calculated from March 1 till the date of closure of the loan account.

For running loans, the amount is to be credited into the loan account. In case of closed loans, the amount will be credited into the savings/current accounts borrowers hold with the lender.

If a borrower doesn’t not have a savings account in the bank she took the loan from, she can give the bank an account of her choice for the purpose.

In Video: Interest on interest waiver: How much do you stand to save?

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