What is the benefit?
Banks and NBFCs will credit compound interest levied on loans up to Rs 2 crores for a six-month moratorium period back to the borrowers by 5th November 2020.
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).
How to avail this benefit?
Full clarity on the same is awaited. However, it is expected that the amount shall get credit in respective accounts from 5th November, 2020 onwards.
What is the eligibility criteria to avail the benefit?
The loan amount should not exceed Rs 2 crore – aggregate of all the facilities from various lending institutions.
Who will get benefit?
Individuals and MSMEs.
Which categories of Loan covered under the scheme?
MSME, Education, Housing, Consumer Durable, Credit Card dues, Auto, Personal, and Consumption.
Whether the benefit passed on to the categories of borrower not availed moratorium facility?
Yes, the waiver of interest on interest will also be given to all such loans by such categories of borrowers, whether or not they availed themselves of the moratorium facility.
What will be the Interest Rate?
The interest rate on which the computation would be worked out will be as on February 29, 2020.
How will interest on interest waiver scheme work?
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.
Given below is the illustration of how much a borrower would save for different loan amounts due to waiver of compound interest payable.
| Compounding Interest Method |
Simple Interest Method |
|
| Principal Loan due as on 29-02-20 |
2,00,00,000 |
2,00,00,000 |
| Interest Payable @8.5% (Say) as on 31-03-20 |
1,41,667 |
1,41,667 |
| Net Due C/f to Next Month (30-04-20) |
2,01,41,667 |
2,00,00,000 |
| Interest Payable @8.5% as on 30-04-20 |
1,42,670 |
1,41,667 |
| Net Due C/f to Next Month (31-05-20) |
2,02,84,337 |
2,00,00,000 |
| Interest Payable @8.5% as on 31-05-20 |
1,43,681 |
1,41,667 |
| Net Due C/f to Next Month (30-06-20) |
2,04,28,018 |
2,00,00,000 |
| Interest Payable @8.5% as on 30-06-20 |
1,44,698 |
1,41,667 |
| Net Due C/f to Next Month (31-07-20) |
2,05,72,716 |
2,00,00,000 |
| Interest Payable @8.5% as on 31-07-20 |
1,45,723 |
1,41,667 |
| Net Due C/f to Next Month (31-08-20) |
2,07,18,439 |
2,00,00,000 |
| Interest Payable @8.5% as on 31-08-20 |
1,46,756 |
1,41,667 |
| Total Interest Payable from 31-03-20 to 31-08-20 |
8,65,195 |
8,50,000 |
| Net Savings due to waiver of interest on interest |
15,195 |