Compound interest

The Compound Interest Exemption Plan Applies To Everyone But Offers Limited Relief – Here’s Everything You Need To Know


  • The government Compound Interest Waiver Plan applies to all retail loans below ₹ 2 crore, whether or not they have benefited from the moratorium in the six months between March and August.
  • The government will grant these borrowers an ex gratia payment of the difference between the compound interest due and simple interest.
  • This means that borrowers will still have to repay simple interest and principal out of pocket.

The Compound Interest Waiver Scheme was released by the Indian Ministry of Finance on October 23. It waives interest on interest or compound interest on certain categories of loans up to ₹ 2 crore.

This not only applies to borrowers who have used the moratorium option issued by the Reserve Bank of India (RBI) to defer repayment of IMEs and other loans, but also anyone else who may have loans below $ 2. crores.

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

A person’s loan repayment plan will continue on terms that have already been established. Borrowers will still have to repay principal and simple interest.

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

  • MSME loans
  • Study loans
  • Housing loans
  • Sustainable consumer loans
  • Credit card charges
  • Auto loans
  • Personal loans to professionals

How does the compound interest exemption regime work?
The RBI first introduced the moratorium in March to help businesses and workers weather the storm created by the pandemic. It was then extended until August 31. Now that the moratorium period is over, the government will grant borrowers the ex gratia payment of the difference between compound interest and simple interest for the six-month moratorium.

This will cover loans with payments due between March 1 and August 31, including the first and second phase of the moratorium.

Lenders must make payment no later than November 5.

Who can benefit from the compound interest exemption regime?

To be eligible, the loan account must be a standard account. This means that as of February 29, he should not be in default or have been tagged as a postcode.

Even if we have not opted for the moratorium, we can opt for this relief regime. It is not limited to full-time borrowers under moratorium. Loans from non-bank financial corporations (NBFCs) and housing finance companies (HFCs) will also be eligible for this scheme.

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