Who is eligible for compound interest waiver during moratorium and how much will be the benefit

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The central government had earlier filed an affidavit in the Supreme Court stating that it would waive interest on interest on loans up to Rs 2 crore for a select category of borrowers.


The government has announced guidelines for the waiver of compound interest that was payable by borrowers who had opted for moratorium on their loan equated monthly instalments (EMI) between March 1, 2020 and August 31, 2020.

The central government had earlier filed an affidavit in the Supreme Court stating that it would waive interest on interest on loans up to Rs 2 crore for select category of borrowers.

  • Eligibility criteria for waiver of interest on interest

As per the announcement made, following are the criteria to be eligible for the scheme:
a) MSME loans, Education loan, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professional and consumption loans are eligible under the scheme
b) The loan amount should not exceed Rs 2 crore - aggregate of all the facilities from the lending institutions
c) The loan account should be standard account as on February 29, 2020
d) The lending institution should be either banking company, public sector bank, co-operative bank or regional rural bank, All India Financial Institution, Non-Banking Financial Company, Housing Finance Company.
e) The payment will be made to the borrower's loan account irrespective of whether the borrower has fully availed, partially availed or not availed the moratorium. Thus, even if you have not opted for the moratorium, then also you are eligible under the scheme.

f) Under the scheme, the difference between the compound interest and simple interest will be credited to the borrower's loan account for the period between March 1, 2020 and August 31, 2020 (Six months/ 184 days).

g) The interest rate on which the computation would be worked out will be as on February 29, 2020.

The lending institution is required to credit the amount to the borrower's account by November 5, 2020.

How will interest on interest waiver scheme work?
Shalini Gupta, Chief Strategy Officer, MyLoanCare.in, an online loans marketplace says, "If you have opted for the six-month moratorium, then the interest portion of your EMI will be added to the outstanding principal component and the new EMI is calculated for the remaining loan tenure. Normally, the interest is calculated using a compounding formula, which means you pay interest on accrued interest as well. However, under the waiver scheme, a borrower is required to pay simple interest instead of compound interest on the outstanding loan amount during the moratorium period which means a lower interest burden on the borrower. The difference between the simple interest (which is offered under the scheme) and compound interest (a normal banking practice) will be borne by the government irrespective of whether the borrower has availed moratorium or not. This essentially also benefits the borrower who were able to service their EMIs diligently even during the moratorium period."
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