What Is Moratorium Interest Waiver Scheme ?




In this article, we are going to cover the details of Ex-gratia payment or waiver of interest on interest scheme announced by Central Government of India. Owing to the unprecedented situation due to COVID-19 crisis, Govt of India had announced 6 month EMI moratorium for all the loan borrowers.The Ex-gratia payment or waiver of interest on interest scheme is a further extension of the moratorium relief package by Central Government for Covid-19 pandemic.

The article may be slightly long, as we have tried to cover all the important aspects related to this scheme. If still some query remains unanswered, pls feel free to raise queries in comments section and we will get back to you.

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Table of Contents

1. What is the interest waiver scheme all about ?

2. Who are the eligible borrowers ?

3. Which all Financial Institutions are covered under the scheme ?

4. How can a borrower claim the waiver or ex-gratia payment ?

5. How will the amount be credited to borrower ?

6. What is the time line for scheme?

7. What would be the applicable Rate of Interest for waiver ?

8. What is the calculation for interest waiver or cashback amount?

9. How will the borrowers know, if they have recieved the cashback ?

10. Frequently asked questions




1.What is the interest waiver scheme all about ?

The basic purpose of this scheme is to provide interest relief on loan moratorium to the borrowers for the moratorium period of March 1, 2020 till August 31,2020.As you must be aware, Govt had provided moratorium facility on EMI payment for 6 months, whereby all the loan borrowers had the option of deferring the EMI payment for the moratorium period. The Moratorium scheme lacked on 2 counts:

a) There was no interest relief on the pending EMI’s, which simply meant that if borrowers chose to avail the advantage of moratorium facility and delayed the EMI payment for 6 months, they were still liable to pay the interest accrued during moratorium period. As per the guidelines, accrued interest amount along with pending EMI’s for 6 months was supposed to be added back to the principal outstanding as on 29th Feb. Accordingly the borrower’s loan account would be rescheduled by either increasing the loan tenor(keeping the EMI same) or if the customer chooses increasing the EMI(no change in tenor).


b) The Moratorium scheme didn’t offer any benefit for the loan borrowers who didn’t avail the moratorium benefit and continued to pay the EMI’s regularly for the 6 month moratorium period between 1 March to 31st August.

The scheme for waiver of interest on interest or the ex-gratia payment scheme (as is being popularly called) aims to provide relief on accrued interest on EMI’s during the 6 month moratorium period by crediting the difference between compound interest and simple interest to all the loan borrowers.


2.Who are the eligible borrowers?

The scheme covers borrowers of 8 categories/segments of loan, which are :

  1. MSME loans

  2. Education loans

  3. Housing loans

  4. Consumer durable loans

  5. Credit card dues

  6. Automobile loans

  7. Personal loans

  8. Consumption loans


The borrowers of aforesaid 8 categories are eligible for this scheme, subject to below mentioned conditions:

i. There is a limitation that sanctioned limits and outstanding amount of such loan accounts should not exceed Rs 2 crore as on February 29, 2020.


ii. A borrower whose combined exposure of all facilities with lending institutions is greater than Rs 2 crore (sanctioned limits or outstanding amount) will not be eligible under the scheme.


iii. Loans declared as NPA(Non-Performing Assets) as on February 29, 2020 doesn’t qualify under the scheme


iv. The scheme is applicable for all existing borrowers, irrespective of the fact that, whether the borrower has fully availed, partially availed or not availed the moratorium facility at all, which implies that those who had not availed the moratorium will also get the benefit of the scheme.


3.Which all Financial Institutions are covered ?

It may be noted that that the scheme shall apply to all lending institutions, which could be a banking company, a public sector bank, co-operative bank, regional bank, all India financial institution, non-banking financial company or a housing finance company registered with the Reserve Bank of India or National Housing Bank.

4.How can a borrower claim the waiver or ex-gratia payment?

Eligible borrowers don’t need to apply for claiming the ex-gratia payment or interest waiver.The ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.



5.How will ex-gratia/waive amount be credited to borrower ?

The ex-gratia amount (difference between compound interest and simple interest) will be credited in the loan account of the borrower by lending institution. For loan accounts, while have been closed, the amount will be credited in the linked bank account of the borrower.


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6.Timeline of the scheme

The banks and other financial institutions will have to credit the accounts of eligible borrowers latest by November 5, 2020.The period of reckoning for crediting the difference between compound and simple interest by lending institutions would be from March 1, 2020 to August 31, 2020.

For accounts closed during the said period, the period of crediting would also be from March 1, 2020 but restricted to the date of closure of the loan account


7.What would be the applicable Rate of Interest for waiver calculation ?

The applicable rate of interest across different loan segments for calculating the difference between compound interest and simple interest would be as under:

  • Education loan, housing loan, automobile loan, personal loans to professionals and consumption loans : The applicable rate of interest shall be the contracted rate as specified in loan agreement.

  • Consumer durable loans :The rate of interest shall be contracted at the same rate as specified in the loan agreement. In a case where no interest is being charged on EMIs (no cost EMIs), the ex-gratia payment to computed using the lender’s benchmark rate, which can be either- base rate or MCLR or any other rate, as applicable.

  • Credit card dues : The applicable rate of interest shall be the weighted average lending rate (WALR) charged by the card issuer for transactions financed on EMI basis from its customers during the period from March 1, 2020 to August 31, 2020. The computation of the WALR shall be certified by the statutory auditor of the card issuer.

  • MSME loans: The rate of interest shall be the contracted rate as specified in the loan agreement.

The government has mentioned that the rate of interest — using which the difference between compound and simple interest would be credited — would be as prevailing on February 29, 2020.

“The rate of interest would be as prevailing on February 29, 2020. In case the rate of interest has changed thereafter, it shall not be reckoned for the purposes of computation. Penal interest or penalty for late payment would also not be reckoned as part of the contracted rate or WALR



8.What is the calculation of interest waiver or cashback ?

The amount to be credited is the difference between compound interest and simple interest for 6 months.


Let’s understand the calculation with an illustration :


Outstanding loan amount as of 29th Feb : Rs 1,000,00

Interest Rate applicable on the loan as on 29th Feb:10%

Compound interest calculation for 6 months will be as under:

Compound Interest(CI)=Outstanding amount*(1+R/12)^n

Where R= Rate of Interest ; n= number of months under moratorium(6 months)

CI for 6 months=1,000,00*(1+10/12)^6=Rs 5,105.33

Simple Interest(SI) for 6 months= ( Outstanding amount* R* Time/100)

= (1,00,000*10*6/12)=Rs 5000

Ex-Gratia or cashback amount = Difference between CI & SI= 5105.33-5000= Rs 105.33


Rs 105.33 is the amount, which customer will receive back as waiver of interest on interest


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9.How will borrowers know if they have received a cashback?


Banks are likely to send a text message to the concerned borrower on registered mobile number with the bank. It is expected that banks will mention the exact refund amount in sms being sent to borrowers

10.FREQUENTLY ASKED QUESTIONS (FAQs)

The Department of Financial Services has issued a set of Frequently Asked Questions (FAQs) on the interest waiver scheme, or the scheme of ex-gratia payment of difference between simple and compound interest to eligible borrowers for a six month period between March 1 and August 31, 2020.


1. What is the benefit of ex-gratia payment to the borrower under the scheme announced by GoI?

The bank/lending institution will provide ex-gratia payment to the borrower account of the difference between compound interest and simple interest on loan accounts with sanctioned limits and outstanding up to Rs 2 crore (aggregate of all the borrowings/facilities from all the banks and financial Institutions) for the period from March 1 to August 31, 2020 (6 months / 184 days).


2. What are the main features of the ex-gratia to borrowers scheme?


The main features / highlights of the scheme are as under:

a. Loan accounts with sanctioned limits and outstanding not exceeding Rs 2 crore (aggregate of all facilities with all the lending institutions) as of February 29, 2020.

b. Loan accounts should be standard in the books of the lending institutions as of February 29, 2020.

c. The relief will cover the following segments – MSME Loans, Education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professionals and consumption loans.

d. The period reckoned for refund shall be from March 1 to August 21, 2020, i.e. 6 months period / 184 days.


3. Do I have to apply for the relief?

No. The ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply.


4. Who will finalise the list of eligible accounts?

Individual banks/ lending institutions will finalise the list of eligible borrower for the relief based on the GoI guidelines.



5. How will the lending institution assess whether a borrower has aggregate loan facilities up to Rs 2.00 crore from the banking system?

Lending institutions are to assess this on the basis of information available with them as well as information accessible from credit bureaus.


6. Will my Non Fund Based Limits as on as of February 29, 2020 be included for arriving at the eligibility amount of up to Rs 2 crore?

No. Non fund based limits will not be included for arriving at the eligibility.


7. Whether accounts categorised as SMA-0, SMA-1 and SMA-2 are eligible to avail the benefit of the package?

Yes, the accounts classified as SMA-0, SMA-1 and SMA-2 as on 29th Feb 2020 are eligible for the relief package.


8. Are NPA accounts eligible for the relief package?

No. The loan should not be a “Non Performing Asset (NPA) as on as of February 29, 2020.


9. Whether borrowers who have opted for deferment of Interest and Instalment under the RBI COVID 19 relief package earlier are eligible to avail the benefit under the above relief?

Yes. The package will be available for eligible borrowers irrespective of whether they have availed or partially availed or not availed the moratorium on repayment announced by RBI vide DOR. No. BP.BC.47/21.04.048/2019-20 dated 27.03.2020 and extended on 23.05.2020.


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10. Whether “partly disbursed loans” are covered under the relief package?

Yes, provided that the sanctioned and outstanding amounts do not exceed Rs 2 crore. The outstanding as of February 29, 2020, shall be the reference amount for calculating the differential interest amount.



11. Can a borrower who has closed the loan account/s between March 1 and August 31, 2020, avail of the benefit of the scheme?

Yes. Such borrowers are eligible for refund of differential interest from March 1, 2020 up to the date of closure of account (not later than 31st August 2020).


12. In which of my accounts will the differential amount be credited?

The differential amount will be credited to the respective loan account(s).


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13. If I have already closed my loan account after March 1st 2020 , how will the differential amount be paid to me?

It will be credited to your savings/current account and if you do not maintain any such account with the lending institution, you can advise the lending institution the details of the account in other banks where the amount can be credited /remitted to.


14.Which Rate of Interest (%) shall be considered for calculating the package, i.e. RoI (%) considered at the time of sanction or RoI (%) as of February 29, 2020?

a. In respect of Education loans, Housing loans, Automobile loans, Personal loans to professionals and Consumption loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/ documentation applicable as of February 29, 2020.

b. In respect of consumer durable loans, the rate of interest to be applied for calculating the differential interest component shall be the contracted rate as specified in loan agreements/ documentation. In case where no interest is being charged on equated monthly instalments for a specified period, for the purpose of relief, interest may be applied at MCLR/ Base rate as the case may be.

c. MSME:

• In respect of term loans / Demand Loan, the rate of interest for the purpose of calculating the differential will be the contracted rate as specified in the loan agreements/ documentation applicable as on February 29, 2020.

• In respect of Cash Credit/ Overdraft, the rate of interest for the purpose of calculating the differential shall be the rate of interest prevailing as of February 29, 2020.

d. Credit Cards

• Eligibility: The Credit Card outstanding (i.e. settled amount) in the account as of February 29, 2020, will be the reference amount. Any debits/credits which are not reflected in the account will not be eligible/ will be excluded.

• RoI (%): The rate of interest shall be the Weighted Average Lending Rate (WALR) charged by the card issuers for transactions financed on EMI basis from its customers during the period from March 1 to August 31, 2020.



15. Will I be eligible for relief if my credit card balance is in “Credit” as of February 29, 2020?

No. Ex-gratia will not be paid on those credit cards where balance is in “credit” as of February 29, 2020.


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16. What will be the treatment of penal interest/ penalties while arriving at the rate of interest?

The contracted rate / interest rate prevailing as on 29.02.2020 which is considered for calculating the interest differential will exclude any penalties or any penal rate of interest applied in the account.


17. What will be the treatment for the repayments / credits made in term loan/ demand loan during the period from 1st March 2020 to 31st August 2020?

The outstanding as on 29.02.2020 will be the reference amount for calculating the differential. Any repayment / credits subsequent from March 1, 2020 – August 31, 2020, shall be ignored for the purpose of calculation.


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18. How will the interest be calculated for cash credit/ overdraft accounts?

Simple interest for the period will be calculated based on daily outstanding as at end of the day at rate of interest prevailing as on 29.02.2020. Compounding of interest shall be at monthly rests.


19. How can I flag my grievances related to the relief package?

The borrowers shall register his/her grievance through the link available in the lending institutions’ official site or visit the home branch and submit his / her grievance.


20. A salaried employee / self-employed professional had availed of a personal loan from bank which has some amount outstanding as on 29th February 2020. Is the loan eligible for ex-gratia payment under the scheme?

Yes. Loans for consumption purposes (e.g., social ceremonies, etc.) are also eligible for coverage under the scheme, besides other specified categories of loans like consumer durables, automobiles, education, credit card dues, housing and personal loans to professionals. However, loans against fixed deposits [including Foreign Currency Non-Resident (Bank) {(FCNR(B)} account, bonds and other interest-bearing instruments], and shares etc., and loans given for investment in financial assets (shares, debentures etc.) are not eligible for coverage under the scheme.


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21.How would the outstanding amount be determined for credit card dues ?

Credit card dues as on 29-02-2020 would be considered as outstanding amount for providing relief to borrowers and the benchmark rate applicable would be the contract rate(WALR) as on 29-12-2020, which is used by credit card issuers for purpose of EMI loans.


22.What is settled amount for credit card dues ?

Settles amount for credit card dues is the amount outstanding against the actual transactions.

For illustration, Authorization amount locked at the time of hotel check in(which is realeased on check-out) would not be considered as part of settled amount for calculation of credit card dues.


23.Whether crop loans and other agriculture loans are covered under the scheme

Crop loans and tractor loans etc are agriculture and allied activities loans and are not part of the 8 classes/segments eligible under the scheme ?


24.Are 2-wheeler loans covered under the scheme ?

Yes, 2-wheeler and other automobile loans are covered under the scheme



25.Whether eligible accounts foreclosed during the said period of 1-03-2020 and 31-08-2020 eligible under the scheme ?

Yes, Eligible accounts foreclosed during this period are eligible for the scheme.


26.Whether consumption loans with gold as collateral security are covered under the scheme ?

Yes, consumption loans, including those backed by gold as collateral security are eligible under the scheme.


27.Whether Micro loans guaranteed by Joint Liability Group(JLG) are covered under the scheme ?

Yes


28. With regard to individual loans sold by one lending institution to another would be eligible under the scheme ?

Yes,accounts of eligible category of loans are covered under the scheme including the individual loan accounts bought as a part of pool buy-outs by one lender from another.


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29.Whether commercial vehicle automobile loans of individuals are covered under the scheme ?

Automobile loans including for commercial vehicles, such as 4-wheeler taxi , are eligible under the scheme.




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