YOUR MONEY: Know all about ex-gratia relief on interest during loan moratorium
The waiver of compound interest on loans has aroused a lot of interest. Under this scheme, any loan of up to Rs 2 crore taken before February 29 this year will not be charged compound interest from March 1 to August 31. The loan will obviously entail an interest, but it will be only simple interest. There will be no “interest on interest”. The waiver scheme is meant to reimburse the compound interest charged during the period.
Any loan taken for home, auto, education, consumer durable, personal and MSME is eligible for the waiver. But the loan should have been taken from a recognised lending institution (bank, NBFC, housing finance company, credit card issuer). Loans from informal sources (relatives, friends, business associates and unregistered moneylenders) are not covered under the scheme. Also, loans against securities and fixed deposits, even if from a recognised institute, are not eligible for this ex-gratia relief.
Even credit card outstandings are eligible. The relief amount will be based on the rate charged by the bank for breaking outstandings down into EMIs. It will not be calculated based on the rate charged on revolving the credit card balances.
The moratorium is the main reason for the waiver. The intent is to offer relief to those who sought the moratorium by not charging them any interest on the interest they didn’t pay. Moratorium loans will be covered by the waiver.
Borrowers who didn’t opt for moratorium
They will also get the benefit. An ex-gratia payment will be credited to their loan accounts. Even if the loan has ended by now, the borrower will get pro-rata benefit for the period it was active between March 1 and August 31. However, bad borrowers will not get any benefit. If the loan became a non-performing asset before February 29, it will continue to accumulate compound interest without any waiver.
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(Article was first published at Financial Express)
Experienced IT Services Leader | Information Security & Cloud Infrastructure Specialist | Strategic IT Governance & Risk Management | Driving Digital Transformation
4 年Banks have charged additional interest for offering moratorium and what they waived off is arround 5% of actual interest they imposed. It is not a relief but a funny drama. In india, no governance applicable on banks. They are dealing with people on their own terms.
President Strategic Initiatives
4 年Worth sharing chief .Thanks.