- Date : 04/11/2020
- Read: 4 mins
The government is offering a refund on compound interest on personal and professional loan products for a six-month period during the COVID-19 lockdown. Here are some FAQs that will help borrowers understand the details of the ex gratia payment they are eligible for.
The Reserve Bank of India (RBI) has directed all banks to implement the Central Government’s compound interest waiver for the six month moratorium on loans offered on account of the economic slowdown caused by COVID-19. The scheme has been implemented by the government to refund the compound interest charged on outstanding loans during the six months of loan moratorium. The refund is expected to ease the financial burden on millions of individuals and small business owners who had availed of the loan moratorium, as their outstanding loans will reduce.
Read on for some quick FAQs on the scheme details:
What is the ex gratia scheme?
As a part of the interest waiver scheme, banks and other lending institutions will have to mandatorily provide ex gratia payment or a refund to all debtors that is equivalent to the difference between compound interest and simple interest charged on the outstanding loans or sanctioned limit up to Rs 2 crore including all borrowings/facilities from all banks or financial institutions. The waiver is on compound interest charged for a period of 184 days from 1 March 2020 to 31 August 2020.
Who is eligible for the waiver?
MSME and personal loan accounts with sanctioned loan amounts and outstanding such as housing loans, education loans, personal loans, automobile loans, consumer durable loans, and credit card dues are eligible for the waiver.
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Who is not eligible for the waiver?
Individuals or MSMEs with outstanding loans above Rs 2 crore will not be eligible. Loans declared as non-performing assets (as of 20 February 2020), loans against fixed deposits (including FCNR), bonds or other interest bearing instruments, shares, debentures, etc. are not eligible for the waiver.
Will I receive the ex gratia payment if I haven’t applied for a loan moratorium?
Yes, all borrowers can avail of the benefit. The scheme is also admissible if the borrower has availed of a partial moratorium.
How do I apply for the relief?
There is no application process. The ex gratia relief will be directly credited to the accounts of all eligible borrowers.
Where will the differential amount be credited?
The differential amount will be credited to the borrower’s loan account. They will be able to see a reduction in outstanding amount, which will result in lower EMI instalments for the rest of the loan tenure. Those who did not apply for the moratorium but made regular payments will be rewarded with cashbacks that can be used to reduce the their outstanding amount and lower the EMIs for the rest of the tenure.
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When will I receive the credit?
The RBI has directed all financial institutions to credit the ex gratia payment in the accounts of borrowers by 5 November 2020.
Can borrowers who have closed their loan accounts between 1 March 2020 and 31 August 2020 avail of the benefit?
Yes. Such borrowers will be eligible for a refund basis the differential on interest from 1 March 2020 up to the date of account closure (and before 31 August 2020).
If the account was closed during the moratorium period, how will I receive the differential?
In case you have a savings/current account with the financial institution, you will receive the credit there. Or else you can provide the lending institution with another bank account where you would like to receive the credit.
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How will the rate of interest be calculated for the compound interest waiver?
For personal loans, housing loans, education loans, and automobile loans, the rate of applicable interest differential will calculated as per the interest rate specified in the loan agreement (as of 29 February 2020).
For outstanding credit card dues, the rate of interest will be the weighted average lending rate (WALR) as charged by the card issuer for transactions financed via EMIs during the specified period. The computation of WALR will be certified by a statutory auditor.
For consumer durable loans, the differential component will be contracted at the same rate as specified in the loan agreement/documentation. In case of no-cost EMIs, the ex gratia payment can be computed using the lender’s base rate or MCLR, whichever is applicable.
In case of MSME term loans/demand loans, the applicable rate of interest for calculating the difference between simple and compound interest will be the contracted rate as specified in the loan agreement (as of 29 February 2020).
Where can I raise a query/concern regarding the relief package?
You can register your grievance via the link available on the respective lender’s official website or physically submit the same at your home branch. Does cancelling a loan application impact your credit score? Check this piece out
