Loan moratorium: Banks told to credit 'interest on interest' to borrowers, RBI tells SC

In a big relief to borrowers, the RBI has informed the Supreme Court that the Union government has come out with a scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months period of Covid-19 induced-moratorium, to them in specified loan accounts.

Under the scheme, borrowers of MSEME, education, housing, consumer durables, credit card dues, automobile loans, personal loan to professionals, consumptions loans, with the outstanding amount not exceeding Rs 2 crore, would be granted the relief.

"The ex-gratia payment under the scheme shall be admissible whether the borrower had fully availed or partially availed or not availed of the moratorium on repayment announced by the RBI in March," the Ministry of Finance stated.

"The Ministry has on October 23 approved the scheme in view of the unprecedented and extreme Covid-19 situation", it said.

In an affidavit to a pending batch of PILs filed by Gajendra Sharma and others challenging levying of interest on interest on the loan, the banking regulator said it has on October 26, 2020, advised all the commercial banks (including small finance banks, local area banks, and regional rural banks), all primary (Urban) co-operative banks, state co-operative banks, district central co-operative banks, all 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.

The period to be reckoned for crediting of difference between compound and simple interest by the lending institutions would be from March 1 to August 31.

The exercise of crediting the amount would be completed by November 5, the Ministry's statement added.

The top court is likely to take up the matter for consideration on November 3.