You have not opted for the moratorium on loans? Here’s how you can be rewarded


A few days ago, the central government submitted a proposal to waive compound interest or “interest on interest” for the six-month loan moratorium period that was announced in view of the economic distress caused by the coronavirus pandemic.

The Center’s proposal to waive interest charges on loans during the moratorium period came after a batch of petitions were filed in the Supreme Court. Eight categories of loans will benefit if the government’s proposal sees the light of day – MSMEs, education, housing, consumer durables, credit card dues, auto, personal and consumer.

While the government’s plan is expected to provide relief to a large number of middle-income borrowers who opted into the moratorium, a report now says borrowers who did not opt ​​into the six-month moratorium will also be compensated.

Read also | Loan moratorium extendable up to 2 years, the Center informs SC

A Times of India report suggested that the finance ministry explore options to reward borrowers who failed to take advantage of the moratorium. Individuals and MSMEs with debt of up to Rs 2 crore may be eligible for cashback or benefits as this would help maintain a level playing field.

Quoting a government source, the report says it is possible to calculate a theoretical benefit borrowers would have received had they opted for the moratorium. The advantage will therefore be passed on to borrowers who have not opted for the moratorium and who have paid their due on time.

“It will be unfair to those who have paid their dues despite the difficulties,” the government source quoted in the report said.

The loan moratorium explained: A moratorium is generally a postponement or postponement of loan repayments for a specific period. It was applicable on all standard loans, including fixed-term loans and credit card fees, from March 1 to August 31, 2020. It may be noted that a moratorium is not a waiver and accrued interest on loans even if clients have opted for temporary relief.

Greater clarity on the reward for those who did not opt ​​in to the moratorium will only come after the Supreme Court accepts the ministry’s proposal to waive compound interest charges, as proposed by the central government.

Reward for timely loan repayments

Experts said the government can reward those who did not opt ​​into the moratorium by reducing the notional amount of interest on interest on their outstanding principal amounts.

Read also | Why struggling companies want the loan moratorium extended until December

Quoting Anil Gupta, vice president of ratings agency ICRA, the report says the relief is not expected to cost the government more than Rs 5,000-7,000 crore, assuming 30-40% of the package loans to banks and NBFCs will be eligible. for relief.

“It assumes that all borrowers receive relief, whether or not they received a moratorium,” Gupta said.

However, the exercise will not be easy given the fact that a significant number of borrowers opted for a moratorium during the six-month period from March to August. Some used the facility for a limited time and delayed NDEs for a few days.

All these calculations will need to be determined and will be done after the government receives all data from banks and NBFCs. Although the government has been unwilling to change its stance, it has faced growing pressure from a large proportion of borrowers to forgo compound interest changes.

If the relief proposal presented by the government is accepted by the Supreme Court, the banks will have to waive interest charges on the interest that was charged during the period of the moratorium. How the banks plan to pass on the benefit remains unclear at this time, but it could be through slightly reduced EMIs or a lower number of installments.

Read also | Loan moratorium case: SC postpones hearing to October 13 and requests submission of all affidavits

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