Good news, borrowers! Banks have agreed to credit back ‘interest on interest’ charged from the customers on credit cards and loans during the moratorium period and have started rolling it out. Individual borrowers, as well as small businesses, with a loan of up to Rs.2 crore, are eligible for the cashback from banks/financial institutions. Note that borrowers who had not opted for a loan moratorium are also eligible for such cashback.
Due to the quick spread of the pandemic and the nation-wide lockdown imposed, the financial regulator of India, RBI, announced a loan moratorium in March 2020 for three months. It has then extended for the next three months, i.e. until 31 August 2020.
Later, the Supreme Court and the Central Government announced the grant of an ex-gratia payment equal to the difference between compound and simple interest to borrowers of specific loan accounts for the duration of 1 March to 31 August 2020. RBI instructed in its recent notification that all banks, financial institutions, and non-banking financial companies (NBFCs) abide by this decision by 5 November 2020.
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The following eight categories of loans are eligible for the refund:
- Education loans
- Housing loans
- Micro, small and medium enterprise (MSME) loans
- Consumer durable loans
- Auto loans
- Personal loans extended to professionals
- Consumption loans
- Credit card dues
To receive the benefit, the loan accounts must be standard in the books of the lenders as on 29 February 2020. The refund shall be provided for a period of six months or 184 days.
When it comes to credit card dues, the interest rate will be the weighted average lending rate (WALR) that is charged by the card issuers for EMI transactions from its customers during the specified period. Penal interest and late payment fees will not be considered as part of WALR.
According to approximations, the interest rate waiver scheme may cost up to Rs.6,500 crore.
For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in
