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Loan moratorium: 'interest on interest' repayment by today, says RBI

| Nov 05, 2020, 10:04:49 AM | TOI.in
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Banks and other related financial institutions to credit 'interest on interest' to eligible borrowers by November 5. RBI had informed the Supreme Court on November 2 that necessary steps were being taken. The Finance Ministry had approved a scheme on October 23. Under the scheme, eligible borrowers would be paid the difference between compound interest and simple interest on loans for six months. The scheme would be applicable from March 1 to August 31, 2020. ‘Interest on interest’ is compound interest during the six-month moratorium period. It is the interest on interest accrued during the period on the principal. Earlier, The RBI had allowed borrowers a six-month moratorium on all loans during the lockdown. But there was little respite from banks and housing finance companies. They were charging interest on the entire loan amount, the principal as well as the interest liability. Recent loans had higher liability as the interest component is mostly loaded in the first few years. Credit cards also witnessed increase in liability due to high interest rates.

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