Interest On Interest Scheme: Banks Credit Customers On Specified Loans


In a welcome move, banks have started crediting borrowers the Compound Interest charged on specified loan accounts during the moratorium period. The government has announced that the scheme for grant of ex-gratia payment of differences between Compound Interest and Simple Interest for six months to borrowers in specified loan accounts.

A message from a public sector bank to a customer quoted, “Dear customer credited COVID-19 Relied ex-gratia of … on November 3 to your account.”

This scheme directs ex-gratia payment to certain categories of borrowers by way of crediting the difference between SI and CI for the period between March 1, 2020 to August 31, 2020 by respective lending institutions.


The government has asked the lending institutions to complete the exercise of crediting the amount in the accounts of borrowers. This is supposed to be done by November 5. This scheme covers Housing loans, Education loans, Credit Card dues, Auto loans, MSME loans, Consumer Durable Loans, and Consumption loans.

It is noteworthy that the waiver doesn’t consist of Agriculture and allied activity loans.

The Reserve Bank of India has also sought all lending institutions, including non-banking financial companies, to implement the waiver of interest on interest for a loan up to Rs 2 crore for the six month moratorium period beginning March 1, 2020.

What happens in this scheme?

Under the scheme, the lending institutions shall credit the difference between Compound Interest and Simple Interest concerning the eligible borrowers in respective accounts. This will be for the said period irrespective of whether the borrower fully or partially availed the moratorium on repayment of loan RBI announced on March 27, 2020.


Additionally, the lending institutions will claim the reimbursement from the Central Government after crediting the amount. This is going to be through State Bank of India’s nodal agency as the scheme has set forth. The centre stated all this in an affidavit.

Who is eligible for the interest on interest scheme?

Additionally, the Finance Ministry has also set forward a list of Frequently Asked Questions (FAQ’s) on Wednesday. These said that consumption loans, including those backed by gold as collateral, are eligible for the waiver. This is the ministry’s second additional FAQ. It came just a day ahead of the last date for implementing the scheme.

Although, 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 (including shares, debentures, etc) are not eligible for coverage under the scheme.

Back in March, the RBI announced a moratorium on repayment of EMI’s and credit card dues for three months. The step is taken to help businesses and individuals with their financial problems due to the COVID-19 crisis.

Source: The Economic Times

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