Mumbai: Lenders are set to credit the interest-on-interest for all loans up to Rs 2 crore to customers Thursday in accordance with the directions of the Supreme Court.
Following the court order, the government had issued directions last month to lenders including commercial banks, non-banking finance companies, cooperative banks, etc to credit the interest-on-interest amount to all borrowers, irrespective of whether they availed the Reserve Bank of India moratorium on loans, by 5 November.
Loans that are standard and not non-performing are eligible for the benefit.
The amount that the customers will receive is the difference between compound interest and simple interest for the 1 March-31 August period. The calculation is based on the outstanding loan amount as on 29 February.
The lenders will credit the funds to the customers’ loan account, and not in the savings account. The customers will not be able to withdraw cash from the loan account.
As the credit is scheduled to happen Thursday, there are three possible options for the customers once the amount is received.
If the customer availed moratorium
In case the customer availed the loan moratorium announced in March, the lender will not charge the borrower interest-on-interest for the six-month period. It is essentially a book entry issue for the banks, wherein the bank will reverse the interest charged on the interest during the six-month moratorium.
If moratorium not availed
If the customer didn’t avail the moratorium, the interest-on-interest amount will be adjusted with the principal outstanding. For example, if Rs 1,000 gets credited to the loan account, the principal outstanding will fall by Rs 1,000.
“The customer should leave that amount in the loan account so that the principal will automatically come down to that extent,” C.S. Shetty, managing director, State Bank of India, told ThePrint.
If loan fully repaid during moratorium period
Customers who fully repaid the loan between 1 March and 31 August are also eligible for the benefit.
Since the outstanding loan amount would be zero, the customer would be able to withdraw the amount. But it would not happen automatically.
At SBI, according to Shetty, if the customer has a savings account with the bank, the funds would be transferred from the loan account to the savings account. In case the customer does not have a savings account with the bank, they would have to apply for the withdrawal of the funds and SBI will issue a cheque or draft for that amount.
“The only time the customer intervention is required is, if the customer has repaid the loan during the moratorium months. The automatic option is that if the customer has a savings account with SBI which is linked with the loan account, it will be credited to the savings account,” Shetty said.
“But if you do not have a savings account, then you have to go to the bank branch and ask for the money. Then the branch will issue a cheque or a draft,” he added.
Details of the waiver
The government has promised to reimburse the amount to all the lenders. After the lenders credit the amount, they can submit a claim for reimbursement latest by 15 December to SBI, which will compile the claims and send it to the government.
The total burden on SBI for the scheme is Rs 650 crore.
Borrowers of home loan, auto loan, education loan, consumer durables, personal loan, loans to micro, medium and small enterprises and professionals with consumption loan and credit card dues will benefit from the waiver.
The government has clarified that gold loan customers are also eligible for the benefit. “Consumption loans, including those backed by gold as collateral, are eligible under the scheme,” said an FAQ released by the government Tuesday.
It also clarified that the credit card dues outstanding as on 29 February will also be eligible for the benefit. “The benchmark rate applicable for such relief (credit card holders) would be the contract rate as on 29.02.20, which is used by credit card issuers for the purpose of EMI loans.”
If a lender has sold a particular loan to another lender, the borrower of that particular loan is also eligible for the benefit.