[Loan Moratorium And Interest Waiver] Banks Are Advised To Credit Difference Between Compound And Simple Interest To Borrowers: RBI Tells Supreme Court

In the ongoing issue pertaining to levy of accruing interest on interest and loan moratorium before Supreme Court, Reserve Bank of India (RBI) informed the Court that banks shall be guided by a Scheme for effectuating ex gratia payments to borrowers towards specified loan amounts.

The Additional Affidavit states that the applicable scheme dated October 23 will be "Scheme for grant of ex gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts" which has been put in place in light of the "unprecedented" situation that the pandemic has brought in.

"RBI/2020-21-61 DOR. No.BP.BC.26/21.04.048/2020-21 dated October 26, 2020 has advised all the Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks), All Primary (Urban) Co-operative Banks/ State Cooperative Banks/ District Central Co-operative Banks, All AllIndia Financial Institutions and All Non-Banking Financial Companies (including Housing Finance Companies) to be guided by the provisions of the Scheme and take necessary actions within the stipulated timeline therein" - RBI To SC

The scheme shall apply for a 6 month period (March 1 - August 31, 2020) and stipulated borrowers who have availed loans or credits will be eligible for benefits. These shall include borrowers in t he segments of loans who have accounts having sanctioned limits and outstanding amount of not exceeding Rs. 2 Crore as on February 29, 2020. The eligible loans include; MSME loans, Education loan, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professional and consumption loans.

"Any borrower whose aggregate of all facilities with lending institutions is more than Rs. 2 Crore will not be eligible for ex-gratia payment under this scheme," says RBI.

Further to this, the RBI has stated that the aforesaid eligibility shall be subject to the following further conditions and stipulations:

i) Account should be standard as on February 29, 2020, i.e. loan should not be a NPA on the said date;

ii) Lending Institutions should be either a banking company or a Public Sector Bank or a Co-operative bank or a Regional Rural bank or an All India Financial Institution, Non-Banking Financial Companies or a Housing Finance Company registered with RBI or a National Housing bank as the case may be. An NBFC & MFI should be member of an SRO recognised by the RBI;

iii) The ex-gratia payment under this scheme shall be admissible irrespective of whether the borrower had fully availed or partially availed or not availed of the moratorium on repayment announced by the RBI earlier.

Issues and concerns relating to claims submitted by lending institutions shall be handled through the designated cell at the State Bank of India in consultation with Government of India. In this light, each lending institution shall put in place a grievance redressal mechanism for the eligible borrowers for redressal of their grievances arising out of the present scheme within one week from the date of the issuance of these scheme guidelines.

On October 25, the Central Government had filed an affidavit stating that the Ministry of Finance has approved the policy decision for granting various reliefs for Covid pandemic, including a policy decision whereby waiver of interest on interest would be effectuated for eligible borrowers of loans up to Rs. 2 Crore.

The affidavit comes after Supreme Court had pulled up the Centre on October 14 for its delay in implementation of their decision for providing benefits to small borrowers who had taken loans of up to 2 Crores.

It is submitted that the preparation of the Scheme in this behalf was under contemplation and it was also necessary to formalise the said policy by following certain mandatory procedure required by law," the Centre has explained in its affidavit.

A bench comprising Justices Ashok Bhushan, R Subhash Reddy and MR Shah told the Centre that even though it had welcomed its decision of relieving the smaller borrowers, there was no reason to delay the implementation of the said decision.

"Their Diwali Is In Your Hands, Mr. Mehta," the bench had told the Solicitor General.

The law officer had then informed the bench that there was diversity in lending and different modalities are required to be followed. "Consultations are on between the required stakeholders," he added.

Click Here To Download Additional Affidavit