Government waives interest on interest for loans upto 2 Crores

At the onset of the festive season in India, the finance ministry has delivered a reason for cheer to those who have outstanding loans. The government on Friday issued guidelines for a scheme under which it would pay the interest on interest for those who have or had outstanding loans (during the last six months) for MSME, education, automobiles, housing and even had credit card payments due, under the six-month moratorium on repayments announced by the Reserve Bank of India.

In a significant move, the benefit of the scheme would include those who availed of the moratorium, partially used the moratorium and those who didn’t avail the relief.

The government on Friday issued the guidelines for the scheme after the approval by the cabinet committee on economic affairs last Wednesday. The order said that the scheme for the ex-grati payment of difference between the compound interest and simple interest or simply put interest on interest for six months for MSME loans, education loans, loans, consumer durable loans, personal loans auto loans and credit card dues has been cleared.

The cost of this scheme for the government is expected to be in Rs 5,500-6,000 crore range.

This scheme only covers borrowers who have loans up to Rs 2 crore. The CCEA had cleared the proposal as a response to the Supreme Court order on the waiver of compound interest or “interest on interest” for the 6 month moratorium period following the coronavirus pandemic.

The guidelines were issued by the department of financial affairs or the banking department of the finance ministry on Friday and sent to all nationalised banks, all india financial institutions, all banking companies, urban cooperative banks, state cooperative banks and housing finance companies for implementation.

The guidelines also include details about mode of calculation of simple and compound interest and the applicable rate of interest.


The order lays down the conditions for eligibility for the scheme. Any borrowers whose aggregate of all loans is more than Rs 2 crore would not be eligible. This means that the scheme benefits small borrowers.

The exgratia shall be admissible irrespective of whether the borrower fully availed of the scheme, partially availed or did not avail of the moratorium on repayment scheme announced by the RBI.

The loan account should not be an NPA as on February 29 this year and lending institution must be a banking company, PSB or cooperative bank etc.

The reckoning period for the scheme is March 1, 2020 till August 31, 2020.

The guidelines also provide the list of lending institutions covered by the scheme.

The government order states that the “exercise of crediting the amount in the respective accounts of eligible borrowers by the lending institution would be complete on or before November 5”.
Lending institutions can lodge their claim for reimbursement latest by December 15.

On Wednesday, top ministers and the finance ministry had refused to divulge the details before presenting it in the apex court. But sources had told India Today that the cabinet committee on economic affairs or CCEA cleared proposal for an ex-gratia payment of ‘interest on interest’ charged on loans for the moratorium period.

Editor JK News Updates

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