No interest-on-interest waiver on tractor loans, clarifies Centre

Tractor loans will not be applicable for Centre’s interest-on-interest waiver as part of its ex-gratia relief scheme for customers. The Finance Ministry has clarified agriculture and allied activity loans will not be part of this plan.

While automobile loans are part of the scheme, tractor loans fall under agriculture and allied activity loans.

Sales of tractors was above pre-pandemic levels at a time when most other vehicles in passenger or commercial segment witnessed a massive fall due to lockdown. Shares of Mahindra and Mahindra doubled since the end of March on the back of rising tractor sales even during the ongoing crisis.

Part of that recovery was due to increased cash flows in rural areas thanks to good rainfall, robust crop output, and government handouts to workers and farmers to offset the coronavirus crisis.

Mahindra’s June tractor sales jumped 47% month-on-month to 35,844 units, but the growth was a modest 8% from a year ago - a period when sales had been damped by a protracted economic slowdown.

The Reserve Bank had on Tuesday asked all lending institutions, including non-banking financial companies, to ensure that the scheme of waiver of interest on interest for loans up to ₹2 crore for the six-month moratorium period is implemented by November 5, as decided by the government.

Last Friday, the government had announced the scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts.

Loan accounts with sanctioned limits and outstanding not exceeding ₹2 crore (aggregate of all facilities with all the lending institutions) will be eligible and such accounts should be standard in the books of the lending institutions as on cut off date of February 29, 2020.

The period reckoned for refund shall be from March 1 to August 21, 2020, that is six months period or 184 days, it said.

The ex-gratia relief will be credited to the account of all eligible borrowers without any requirement to apply, it said.

As per the scheme, the lending institutions shall credit the difference between compound interest and simple interest with regard to the eligible borrowers in respective accounts for the said period irrespective of whether the borrower fully or partially availed the moratorium on repayment of loan announced by the RBI on March 27, 2020.

The scheme is also applicable on those who have not availed the moratorium scheme and continued with the repayment of loans.

The scheme, which was announced as per the direction of the Supreme Court, is likely to cost the exchequer ₹6,500 crore.