Compound Interest Waiver Scheme applies to everyone but provides limited relief — Here’s everything you need to know

• The government’s Compound Interest Waiver Scheme applies to all retail loans under ₹2 crore, regardless of whether they availed the moratorium in the six months between March to August.
• The government will grant these borrowers an ex-gratia payment of the difference between the compound interest due and the simple interest.
• This means borrowers will still have to repay the simple interest and the principal amount back from their own pockets.

The Compound Interest Waiver Scheme was released by Indian’s Ministry of Finance on October 23. It waives interest-on-interest or compound interest on certain categories of loans upto ₹2 crore.

Not only does this apply to borrowers who availed the moratorium option issued by the Reserve Bank of India (RBI) to defer repayment of EMIs and other loans, but also to all others who may have loans of less than ₹2 crore.

However, the scheme only waives of compound interest. This is the amount of interest that is specifically charged only on the interest payment that is due, not on the principal amount itself.

A person’s loan repayment plan will continue on the terms that have already been set out. Borrowers will still have to pay back the principal amount and the simple interest.

Which loans are eligible under the Compound Interest Waiver Scheme?
Retail loans such as home, education, auto, personal loans and credit card debt of upto ₹ 2 crore are eligible for this relief.

• MSME loans
• Education loans
• Housing loans
• Consumer durable loans
• Credit card dues
• Automobile loans
• Personal loans to professionals

How does the Compound Interest Waiver Scheme work?
The RBI first introduced the moratorium in March to help businesses and salaried employees weather the storm created by the pandemic. It was later extended until August 31.

Now that the moratorium period is over, the government will grant borrowers ex-gratia payment of the difference between the compound interest and the simple interest for the six months of the moratorium.

This will cover loans where instalments were due between March 1 and August 31, including both the first-phase and second-phase of the moratorium.

The lenders must issue the payment on or before November 5.

Who is eligible to avail the compound interest interest waiver scheme?

To be eligible, the loan account should be a standard account. This means that as of February 29, it should not defaulted on payments or have been tagged as an NPA.

Even if one has not opted for the moratorium, they can opt in for this relief scheme. It is not limited to full time moratorium borrowers. Borrowings by non-banking financial corporations (NBFCs) and housing finance corporations (HFCs) will also qualify under this scheme.

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