LAKHS OF borrowers, irrespective of whether they availed of moratorium or not during the lockdown, will get some cash-back with the government deciding to provide relief in the form of ex-gratia payment on loans up to Rs 2 crore per borrower.
The cash-back is the difference between the compound interest and simple interest, applicable to certain categories of borrowers, including housing, credit card and MSMEs, for the period between March 1 and August 31 this year. A borrower with a Rs 50-lakh home loan outstanding, for example, will get a benefit of about Rs 12,425 in the form of savings on acount of compound interest for a six-month period, assuming the rate of interest at 8 per cent. At this rate, six months simple interest is about Rs 2 lakh, and, along with the compound interest, adds up to Rs 2,12,425 — with the government paying the difference of Rs 12,425. All borrowers will have to pay simple interest to the banks.
This will help in reducing the burden on borrowers and cost the government about Rs 6,000-7,000 crore. To create parity among borrowers and to preserve the credit culture for timely repayments, ex-gratia payment is being provided even to those who did not avail of the moratorium, sources said.
“In view of the unprecedented and extreme Covid-19 situation, the object of the scheme is to provide ex-gratia payment of difference between compound interest and simple interest by way of relief for the period from March 1, 2020 to August 31, 2020 to borrowers in specified loan accounts. Such payment does not constitute a contractual, legal or equitable liability of the central government,” the government scheme says.
The waiver will be provided by all private and state-owned banks, cooperative banks, regional rural banks, housing finance companies and non-banking financial companies.
Bankers say that it’s not an easy task and involves more paperwork for banks and housing finance firms. There are lakhs of borrowers who are now waiting for the cash-back from the government. First, banks will have to process the claims of borrowers and credit the amount. They will have to lodge the claim for reimbursement with the designated cell at SBI, which will function as the nodal agency for the scheme, by December 15, 2020. SBI will evaluate the claims and furnish the details to the government. Lending institutions will get the funds through SBI.
The compound interest waiver is for most of the loans — housing, MSME, education, consumer durable, credit card dues, automobile, consumption and personal loans to professionals. Any borrower whose aggregate of all facilities with lending institutions is more than Rs 2 crore — sanctioned limits or outstanding amounts — will not be eligible for the waiver.
The waiver will be provided by all private and state-owned banks, cooperative banks, regional rural banks, housing finance companies and non-banking financial institutions.
For credit card dues, which typically carry higher interest charges, the rate of interest will be the weighted average of the lending rate (WALR) charged by the card issuer for transactions financed on the EMI basis. The relief has been worked out after the Supreme Court asked the government to come out with such a scheme.
“Assuming not more than 30-40 per cent of the overall loans of the banks and NBFCs will be eligible for relief, the cost to the government should not exceed Rs 5,000-7,000 crore. This is assuming all borrowers are given relief irrespective of whether they are availing the moratorium or not,” said Anil Gupta, Vice President, ICRA Ltd.
The ex-gratia payment under this scheme will be admissible irrespective of whether the borrower had fully availed or partially availed or not availed of the moratorium on repayment. It is for those loan accounts which are standard and not non-performing assets (NPAs) as on February 29. For loan accounts which were closed during this period, the ex gratia payment will be made from March 1, 2020, till the date of closure of such account.
As per government guidelines, banks will be crediting this amount into the accounts of borrowers and seek disbursement from the government latest by December 15, 2020. A dedicated cell within the State Bank of India will be created, which will work in consultation with the Finance Ministry.
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