Editor's Pick: A welcome relief for borrowers

(The Editor's Pick is a new newsletter from The Hindu that provides a snapshot of the most important stories from today's edition of our newspaper, along with a note from our top editors on why we chose to give prominence to these stories.)

The Central government has informed banks and other lenders how to handle the reimbursement of the "interest on interest" charged under the RBI's loan moratorium scheme. The lenders have to return the difference between the compound interest and simple interest for the period between March 1 and August 31 for loans with outstanding amount under Rs. 2 crore, by November 5. The government has said that this will benefit all borrowers, irrespective of whether they have opted for the moratorium or not. This scheme covers non-banking financial institutions and credit card bills as well.

In March, the RBI had allowed lending institutions to offer borrowers a holiday on EMI payments for three months considering the difficulties of the coronavirus pandemic. This moratorium was later extended by three more months. However, once it became clear that banks will be charging compound interest, or interest on the interest that accumulates during this period, some borrowers had approached the Supreme Court seeking redress. The Finance Ministry had early in October acceded in court to waiving the "interest on interest" for loans up to Rs. 2 crore. After a prod from the court to implement the scheme soon, the government has now told lenders to charge only simple interest, or interest on the outstanding loan amount alone, on all outstanding loan amounts below Rs. 2 crore. Once the banks pay back the difference to the borrowers, they can reclaim it from the Central government through a special cell operated by SBI.

This move comes as a welcome relief to borrowers. This also come at the end of a back and forth between the Centre and the Supreme Court on how much relief can be offered to borrowers, making this story important.

(Since there is no edition of The Hindu tomorrow on account of today's Ayudha Puja holiday, Editor's Pick will return on Tuesday.)