All You Need to Know About Government’s Compound Interest Waiver Scheme

The government announces a scheme of ex-gratia payment for the difference between compound and simple interest. Here is all the information that you need to know about the government’s compound interest waiver scheme. 

Interest Waiver Scheme

The RBI on 23 rd October asked all lending institutions including NBFCs, to implement the waiver of interest scheme for loans up to two crores. The scheme mandates payment of the difference between simple interest (SI) and compound interest (CI) for the period between March 1, 2020, to August 31, 2020, in the form of ex-gratia payment to specific categories of borrowers. This category includes borrowers (MSME, education, housing, personal, consumer, and credit card) whose outstanding loan is not more than Rs 2 crore as of February 29, 2020. Also, the Finance Ministry has directed lending institutions to credit the amount by November 5.

Scheme to Cost Rs 7500 Crore to National Exchequer

The Supreme Court on 14th October ordered the government to implement the scheme immediately under the RBI moratorium scheme. Also, it said that the common man’s Diwali is in the hands of the government.

RBI notified the apex court that an interest waiver would cost banks around Rs 2 lakh crore. So, the taken decision seems a practical solution. Besides, the lending institutions will get compensation from the Central government. Accordingly, it will cost the national exchequer about Rs 7500 crore.

RBI announced a loan moratorium on 27th March to alleviate the stress of the Covid hit economy. The banks duly implemented the EMI deferral scheme; however, they mentioned compound interest on the outstanding amount.

The Scheme for All

The scheme does not take into account the time of moratorium availed by the borrower. So, whether the borrower has availed the moratorium partly (say for three months) or entirely (six months), every borrower’s account will be credited.

In all, with the government taking the burden of interest waiver, prolonged uncertainty on the issue has come to an end.

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