Lenders to credit 'interest on interest' to borrowers by Nov 5, Centre tells SC

New Delhi: The Centre has informed the Supreme Court that lenders have been directed to credit in the accounts of eligible borrowers by November 5 the difference between compound interest and simple interest collected on loans of up to Rs 2 crore during the RBI's loan moratorium scheme.

The Ministry of Finance has said that after crediting this amount, the lending institutions would claim reimbursement from the Central government.

In an affidavit filed in the apex court, the government has said that the ministry has issued a scheme as per which lending institutions would credit this amount in the accounts of borrowers for the 6-month loan moratorium period which was announced following the COVID-19 pandemic situation.

Under the scheme, all lending institutions (as defined under clause 3 of the scheme) shall credit the difference between compound interest and simple interest in the respective accounts of eligible borrowers for the period between March 1, 2020 to August 31, 2020, the affidavit said.

It said: The Central government has directed that all lending institutions described in clause 3 thereof shall give effect to the scheme and credit the amount calculated as per the scheme in the respective accounts of borrowers by November 5, 2020.

The affidavit was filed in the top court which is hearing a batch of pleas which have raised issues, including that of interest on interest', concerning the loan moratorium period.

The affidavit said the amount shall be credited by lending institutions irrespective of whether such eligible borrowers have fully availed or partially availed or have not availed of the moratorium viz. deferment in payment of instalments as per the circulars dated March 27, 2020 and May 23, 2020 issued by RBI.

After crediting the said amount in the respective accounts of eligible borrowers, the lending institutions would claim reimbursement from the Central government through the nodal agency of State Bank of India as stipulated under the scheme, it said.

It said the decision has been taken after careful consideration, keeping in mind the overall economic scenario, the nature of borrowers, impact on the economy and such other factors as a policy decision earmarking the above referred class of borrowers for grant of benefits .

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

"All lending institutions are advised to be guided by the provisions of the Scheme and take necessary action within the stipulated timeline," the RBI said in a notification.

In a tweet, office of Finance Minister Nirmala Sitharaman said "RBI advises all lending institutions to be guided by the provisions of the scheme for grant of ex-gratia payment of difference between compound interest & simple interest for 6 months to borrowers in specified loan accounts & take necessary action within the stipulated timeline".