Interest Cashback Scheme 2020 on Business Loan Interest Charged During Moratorium

Last Updated : Oct. 26, 2020, 6:17 p.m.

In the month of March 2020, the central government has announced a moratorium period of 3 months during which the individuals were allowed to skip the EMIs on exiting business loans. Later on, the moratorium period was extended to August 2020. But most of the individuals were in the dilemma that the bank will charge interest on interest on their outstanding EMIs. So there is a recent Interest Cashback Scheme 2020 on business loan interest charged during moratorium issued by the central government. This scheme is applicable to all business loan borrowers whether they have opted for the moratorium period or not. The bank will give a Cashback to the individual on the interest charged during the moratorium period.

Interest Cashback on Business Loan

As per this latest scheme the interest on the business loan for the period of 6 months will be charged through the Simple Interest method. It was charged on a compound interest method but for the month from March to August, it will be charged on a simple interest method. So, the bank will credit the difference of the Simple Interest and Compound interest to the individual account. Everyone knows that the amount of compound interest is more than the amount of Simple Interest. Therefore, the Cashback on the interest will be the differences of these two methods.

How the Interest Cashback Scheme is Beneficial

After going through the above guidelines it is clear that the interest on your business loan will be charged on a simple interest basis and not on a compound interest basis. So, you can see the sum of money you will get as a Cashback on the loan amount if you have partially, fully, or not opted for the moratorium period.

Compound Interest on ₹5 Lacs for 6 Months @18%

If the bank is implementing compound interest on the above amount for 6 months then the final interest you will have to pay is as follows:-

You can see in the above table that the final interest on the principal amount of ₹500000 for 6 months at an interest rate of 18% is ₹46721.63. Now, let’s see the amount of interest on ₹5 lacs if it is charged through the Simple Interest method.

Simple Interest on ₹5 Lacs for 6 Months @ 18%

If the bank is implementing Simple Interest on the above amount for 6 months then the final interest you will have to pay is as follows:-

Simple Interest= Principal x Interest x Time/ 100

The Simple Interest on

₹5 Lacs for 6 months at the rate of 18% will be ₹45000.

Findings

So, the above example proves that the compound interest is more than the simple interest. The bank will give the interest Cashback on the business loan that will be the difference of ₹46721.63 and ₹45000. So, finally, you will get a Cashback of ₹1721.63 on the business loan interest and everyone is eligible for this Cashback whether he has opted for the moratorium period or not.

Terms and Conditions of Interest Cashback on Business Loan

• The interest waiver will be given on the interest charged on a business loan for the period from March 2020 to August 2020.
• The outstanding amount of the individual must be up to ₹2 Crores.
• The amount of Cashback will be the difference between the Compound Interest and Simple Interest for the period of 6 months on the outstanding business loan.
• The central government will give reimbursement for the Cashback given to the business loan borrowers.

Banks that give Interest Cashback

You can see the banks that are eligible to give Cashback as per the Interest Cashback Scheme 2020 on Business Loan Interest Charged during Moratorium.

• Public and Private Sector Banks
• Co-operative Banks
• Regional Rural Banks
• All India Financial Institution
• Non-banking Finance Companies (NBFCs) having a membership to an RBI-recognized self-regulatory organization.
• Housing Finance Companies (HFCs) registered with the RBI or National Housing Bank