All banks and other lending institutions in the country will soon credit the difference in compound interest and simple interest on repayments of eligible loans up to Rs 2 crore due between March and August. The move is aimed at helping the borrowers tide over any financial difficulties caused by the coronavirus pandemic and related restrictions. This money will be reimbursed by the government to banks, according to a Reserve Bank of India notification on Tuesday. The credit of relief in loan accounts will arrive days ahead of Diwali, as the country prepares for the ongoing festive season, normally the time for new purchases.
Who will benefit from this scheme?
The loan relief is meant for personal, housing, education, auto and consumer durables loans, loans to micro, small and medium enterprises (MSME), as well as loans to micro, small and medium enterprises (MSME) and credit card dues, subject to certain conditions.
The lenders will credit the amount irrespective of whether the borrower fully or partially opted for the relief.
Giving these benefits to the borrowers will reportedly cost the government Rs 6,500 crore, and the banks will have to claim the reimbursement by December 15.
The loan account has to be healthy as of February 29 and within the limit of Rs 2 crore.
The scheme also includes voluntary relief to eligible borrowers regardless of whether they had opted for the relief on payments due within the six-month period.
In other words, even if you did not seek this relief from your bank or financier during the pandemic-related lockdown, you will still get the money in your loan account.
What is this amount, and how much money will be credited to your account?
The RBI notification mentions the payment of the difference between simple interest and compound interest for the March-August period by lending institutions.
Compound interest, also known as interest on interest, is the interest accumulated on the original loan for any delay in the repayment. Simply put, any delay in a loan repayment leads to more interest under typical banking rules, a matter being debated in the Supreme Court currently with reference to the pandemic-related situation.
The loan outstanding as of February 29 will be the reference amount for calculating the sum payable to the borrower, according to the Finance Ministry. In other words, the portion of your loan unpaid on February 29 will determine the benefit you will get.
This month, the top court directed the government to give the loan relief to eligible borrowers "as soon as possible", saying that any delay in its implementation is not in the interest of the common man.
The government was forced to rethink its loan relief scheme after the RBI allowed borrowers to postpone their loan instalments due between March and August, but also permitted banks to charge interest on such delays. That meant the borrower would be able to pay later but at additional cost.