Interest waiver on Interest cost puzzling

The Govt has announced that interest on interest will be credited to the accounts who have paid EMI regularly .

If somebody has paid their EMI regularly and on time why would there be any interest on interest to begin with !!!! What scheme is this ?

Can the Govt please specify how much are they incurring in expense in this scheme? more  

The practice of interest waiver, loan mela, interest subvention, loan write off is a bad practice and politically motivated. By doing so, the health of Banking industry is being compromised. more  
Amit Mishra, Mr Abhijit sen has aptly clarified your doubts, Govt is just giving a level playing ground for honest EMI payers. more  
Mr Sen is correct. It was to help people who could not pay EMIs (basically for entrepreneurs/small and medium enterprises to reduce the pain of the loss of production and so on. it is only those who opted for the scheme of settlement, notified earlier. Let us be clear on this. Banks protested reduction of interest on interest; In order to main the fiscal discipline GoI has stepped in to compensate the interest waiver. Other countries have done it also, because there were no buyers/sellers. Take for instance the truck owners, (which comes readily to mind) had taken loans for the trucks from the banks purchase; Now when the truck is NOT running then the EMI becomes interest on interest. He will pay EMI only and the interest waiver would be allowed through banks or NBFFs. It is not as if some particular individuals have been given any favours; One thing is clear from this that, speaking rationally and economically, The government has not passed on the burden on the Banks NPAs, or what is known as "stressed Assets" which would bring down the Banks performances down by considerable amounts. We have NO other choice, but to bite the bullet. more  
It is a correct step as till now all honest payers be it tax or loan have been shortchanged. All subsidies ,freebies ,loan waivers .NPA write offs should be stopped forthywith.And it should include everybody including MPs ,MLAs ,corporators more  
Here is what I understood:

First about those who did not pay EMI for six months during lock-down period from April 2020 to September 2020. The lender (Bank or NBFC) would charge interest on the outstanding EMI to the customer. Now, the government will compensate these consumers by paying the interest part for the unpaid six EMI to the lender and the borrowers will not pay interest on delayed payment of EMI.

Here comes the notional loss for those who paid the EMI during the lock-down period. More than the financial loss, those who paid EMI on time during the lock-down period feel shortchanged as those who did not pay are compensated and those who made timely payment are left high and dry.

Hence, the government has decided to give a cash-back to these customers of the amount of interest on EMI if were not paid during lock-down period. In my humble opinion, this is a very rational step in encouraging fiscal discipline among borrowers. more  
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