RBI directs lending institutions to implement waiver of interest on interest schemes

The Reserve Bank of India asked all lending institutions including non-banking financial companies on October 27, 2020 to implement the waiver of interest on interest schemes for loans up to Rs 2 crore.

The RBI has asked the banks to implement the waiver of interest for a moratorium period of six months starting from March 1, 2020. The centre had on October 23 announced a scheme to grant ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts.

Under the scheme, the lending institutions have been mandated to grant ex-gratia payment to certain categories of borrowers through crediting the difference between simple interest and compound interest for the period between March 1- August 31, 2020. 

The centre had given the lending institutions time till November 5 to complete the exercise of crediting the amount in the accounts of borrowers.

RBI Notification

The Reserve Bank in its notification has advised all the lending institutions to be guided by the scheme's provisions and take necessary action within the stipulated timeline. 

Centre's Interest Waiver Scheme

•  Under centre's interest waiver scheme, the lending institutions shall grant the difference between compound interest and simple interest to eligible borrowers in their respective accounts for the slated period.

•  The difference will be granted irrespective of whether the borrower fully or partially availed the moratorium on repayment of loan announced by the RBI on March 27, 2020.

•  The scheme will cover education loans, credit card dues, MSME loans, housing loans, auto loans, consumer durable loans and consumption loans.

•  The lending institutions can claim reimbursement from the centre after crediting the amount.

Background

The Reserve Bank had announced a moratorium on repayment of debt for six months starting from March 1, 2020 to help businesses and individuals overcome financial problems faced due to disruption in normal business activities in the wake of COVID-19 pandemic.

The Supreme Court had directed the Centre on October 14 to implement the interest waiver scheme on loans up to Rs 2 crore under the RBI moratorium scheme as soon as possible saying that the common man's Diwali was in the hands of the government.