Interest waiver scheme: Big task, but lenders meet deadline

Though small amounts, millions of borrowers have seen their loan accounts being credited with interest benefit over the past week. Under the Centre’s ex gratia interest on interest scheme, borrowers with loan exposure of up to ₹2 crore were to receive payment of the difference between the compound and the simple interest for six months (from March 1 to August 30). Most lenders appear to have completed the process by the November 5 deadline.

Customers have got credits ranging from a few hundred to a few thousand rupees. For instance, for a personal loan outstanding of ₹10 lakh (as on February 29), the interest amount credited is about ₹1,300 (at 11 per cent interest). For a home loan of ₹50 lakh, the benefit has been about ₹3,300 (at 8 per cent).

State Bank of India and Bank of Maharashtra have credited customers loan accounts with ex gratia amounts aggregating about ₹650 crore and ₹23 crore, respectively. Bank of India has credited ₹72 crore. PNB, too, confirmed completing the exercise by November 5.

According to banking expert V Viswanathan, due to this credit, customers’ loan account outstanding will get reduced to that extent.

Loans from all lenders eligible

The scheme is to benefit borrowers of all lending institutions (all banks, urban cooperative banks, NBFCs, NBFC-MFIs, State cooperative banks, District Central Cooperative Banks, Regional Rural Banks and Housing Finance Companies).

Market leader Housing Development Finance Corporation, PNB Housing Finance, and Sundaram Finance also confirmed to BusinessLine that they have completed the process of crediting interest to eligible borrowers.

Deo Shankar Tripathi, MD and CEO, Aadhar Housing Finance, said all payments were credited by the company on November 4. “The interest payment amounted to over ₹20 crore for our 1.6 lakh borrowers.”

Magma Fincorp has credited ₹30-35 crore refund for interest on interest. “No major challenges were faced, though some tractor loan categories did face some issues on eligibility,” said Kailash Baheti, CFO.

With the ₹2-crore aggregate exposure cap, the understanding was that the key beneficiaries will be small manufacturing/processing units, trading outfits and those who have taken home loans. Retail borrowers with personal loans and credit cards, too, have been benefited under the scheme. All MFI borrowers have been eligible under the scheme.

“At Arohan Financial Services, we have completed all the credits to our borrowers under the scheme one day before the November 5 deadline. The average ticket size of loans for our customers is about ₹22,000 and the interest benefit credit in each account would be about ₹100,” said Manoj Kumar Nambiar, MD of Arohan Financial Services and Chairman of Microfinance Institutions Network (MFIN).

While there was some ambiguity earlier on whether MFI loans would be eligible for the scheme, the Centre’s recent clarification has addressed the issue, according to industry experts.

Micro loans

On whether micro loans guaranteed by Joint Liability Group (JLG) are covered under the scheme, the Centre’s recent FAQ stated that individual loans from the eight eligible categories of borrowers, including those categorised as MSME by the lending institution, are covered under the scheme.

“MFI loans fall under the tiny and micro enterprise loan category and are hence eligible for the benefit,” explains Manoj Kumar. For all the 60 million MFI loans in the industry put together (across all lending institutions including universal banks and small finance banks), the total benefit under the scheme amounts to about ₹600 crore, which would be claimed by lenders for reimbursement from the government, adds Manoj.

Eight loan segments — MSME, education, housing, consumer durables, credit card dues, automobile, personal, consumption, advances to professionals — are eligible for the scheme.

Some players such as Fincare Small Finance Bank, that do not charge interest on interest as a normal policy, have not credited any amount to their borrowers.