All lending institutions will credit the difference between compound interest and simple interest on loans to eligible borrowers for the period between March 1 and August 31.
The Centre has informed the Supreme Court that the difference in the compound interest and simple interest charged for six months of moratorium period on eight categories of loans worth up to ₹2 crore will be paid back to borrowers by November 5, 2020.
The scheme is meant to bring “additional relief” to borrowers affected by the pandemic-induced financial distress.
“The Central Government has directed that all lending institutions shall give effect to the scheme and credit the amount calculated as per the scheme into the accounts of the borrowers by November 5,” the Ministry of Finance said in a short affidavit in court.
All lending institutions will credit the difference between compound interest and simple interest on loans in the respective accounts of eligible borrowers for the period between March 1 and August 31, the affidavit said.
“The amount shall be credited by each of the lending institutions irrespective of whether such eligible borrowers have fully availed or partially availed or have not availed of the moratorium/deferment in payment of installments as par the circulars dated March 27 and May 23 issued by the RBI,” the affidavit explained.
The waiver scheme will cover MSME, education, housing, consumer durables, credit card, auto, personal and consumption loans.
Clause three of the waiver scheme defines “all financial institutions” to include banking companies, public sector banks, cooperative banks, regional rural banks, all India financial institutions, non-banking financial companies, housing finance companies registered with RBI and national housing banks.
In the last hearing on October 14, a three-judge Bench led by Justice Ashok Bhushan had questioned the government’s need to wait a whole month, till November 15, to notify the implementation of a scheme for waiving the compound interest (interest on interest) accumulated during moratorium against loans worth up to ₹ crore.
The Ministry told the court that the Union Cabinet had approved the scheme on October 21.
The next court hearing on the issue is scheduled for November 2 to evaluate the steps taken till then by the government.