[Loan Moratorium] Scheme Of Waiver Of 'Interest On Interest' For Eligible Borrowers Will Be Implemented By Nov.5: Centre Tells Supreme Court

The Central Government has 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 eligible borrowers under the scheme shall be on MSME loans, Education loan, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professional and consumption loans of up to 2 crores.

To be eligible for the scheme, the account should be standard as on February 29, 2020 and the loan should not be a Non Performing Asset as on that date.

The Additional Secretary, Department of Financial Services has stated in the affidavit that pursuant to a meeting held on October 21, the decision has been approved, issuing a scheme.

Under the scheme, the difference between the compound interest and simple interest will be credited to the borrower's loan account for the period between March 1, 2020 and August 31, 2020.

Lending institutions defined under Clause 3 of the scheme shall credit the difference. These include either banking company, public sector bank, co-operative bank or regional rural bank, All India Financial Institution, Non-Banking Financial Company, Housing Finance Company.

The scheme further states that after crediting the said amount by the institutions in accounts of eligible borrowers, lending institutions would claim reimbursement from the Central Government through the nodal agency of State Bank of India.

The Centre has stated that the aforesaid decision has been taken after careful consideration, keeping in mind the overall economic scenario, nature of borrowers, impact on the economy and such other factors as a policy decision, earmarking the aforementioned borrowers as class of borrowers for grant of benefits.

The Centre goes on to state that as earlier stated in the affidavit filed on October 9, it is reiterated that "depending upon the fact/situation prevailing in the country and globally and keeping several, financial and other factors in mind, each sector will be getting relief as mentioned in the earlier affidavit of the Central Government and the affidavit of the RBI, including beneficiaries of the present scheme".

The lending institution is required to credit the amount to the borrower's account by November 5, 2020.

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.

The bench also added that it had always permitted the Government to take as much time as they required so that they could come back with instructions but that it was not in the interest of the common man to continue delaying the implementation.

"Please see the plight of the common man," Justice MR Shah had remarked.

The SG had then gone on to explain that Banks which waive interest on interest & then will be compensated by Govt and the calculation will have different modalities. "We will have to ensure that bank gives us a proper format," he added.

Bench then went on to indicate that they will take up the case on November 2 and that, it expected the Government to tell the top court about the implementation of the aforesaid benefits.

The affidavits have been filed by the Centre in response to a batch of pleas in the apex court, raising issues pertaining to validity of RBI's March 27 circular which allowed lending institutions to grant moratorium on payment of instalments of term loans falling due between March 1, 2020 and May 31 this year due to the pandemic.

Later, the period of moratorium was extended till August 31.

Click Here To Download Affidavit by Centre