The Government of India has proposed a landmark loan amortsisation scheme, but has been left to make a judgement on how to define what is an amortised loan and what is a free loan.
While the government is set to introduce the policy, there is a long way to go to reach a consensus on the definition of what is amortising an existing loan and whether to make an amending loan free, said a senior government official.
“The Government of the day has to come up with an amortsising policy to be used by banks.
The problem is that there is no agreement among stakeholders on what is and is not amortizing,” the official said.
The official said the proposal is yet to be finalized and will be discussed in the Budget session of the Cabinet on March 21.
Banks need to be aware that there are many loan amends and there is an option to change the term, the official added.
The government will introduce the new policy on March 19.
It will have to take a decision on amortisations by July 2018, after which it will be reviewed by the government.
The current amortisement scheme for new loans is Rs 1.75 lakh, which is fixed by the Reserve Bank of India (RBI) for two years.
The banks must amortize it by the end of the two years to avoid the effect of inflation.
The banks can also change the amortized term of loans by changing the interest rate.
Under the existing scheme, the interest on the loan is fixed at 6 per cent per annum.