Banks are advised to credit difference between compound and simple interest to borrowers: RBI to Supreme Court

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

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.” the additional Affidavit stated.

“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 India 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 stipulated borrowers who have availed loans or credits will be eligible for the benefits of the scheme and the scheme shall apply for 6 month period i.e. March 01 – August 3, 2020.The eligible loans include MSME loans, education loan, housing loans, consumer durable loan, credit card dues, personal loans, automobile loans to professional and consumption loans.

Borrowers in the segments of loans having sanctioned limits and outstanding amount of not exceeding Rs.2 Crore as on February 29, 2020 shall be included. “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.

The Central Government had filed an Affidavit on the October 25, stating the Ministry of finance have granted the policy for decision for granting various reliefs to COVID pandemic. It also include waiver of interest on interest would be effectuated for eligible borrowers of loans up to Rs. 2 Crore.

The affidavit comes after when Supreme Court pulled up the Centre on October 14 for delay in implementation of decision for providing benefits to small borrowers who take loan up to 2 Crore.

The centre has explained in its affidavit 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 provision required by the law.”

Justices Ashok Bhushan, R Subhash Reddy and M.R 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.”The bench told Solicitor General, “Their Diwali Is In Your Hands, Mr. Mehta

There was diversity in lending and different modalities are required to be followed the law officers informed the bench, “Consultations are on between the required stakeholders,” he added.



Sakshi Patil
“An Investment in Knowledge pays the best interest”. I Ms. Sakshi Patil currently pursuing Bachelors of Law (LLB) from Pune University ,and I believe that Knowledge is a commodity to share and it should be not remain the monopoly of selected few. Studying Law helps me understand how society is govern and how law acts as medicine to heal the society. Keeping positive and open minded approach in every aspect of life is the aim and I hope to learn with every opportunity and can help to those in need and create awareness among people about law and its importance. As quoted by Henry Ward Beecher, ”A Law is valuable not because it is a law ,but because there is right in it.”