RBI issues direction for ex-gratia payment of interest on interest

New Delhi, 27-Oct-2020

The Reserve Bank of India issued direction on Tuesday to all lending institutions to implement provisions of Scheme for grant of ex-gratia payment of difference between compound and simple interest for six months to borrowers in specified loan accounts (1 March to 31 Aug) and take necessary action within the stipulated time. The notification said, "The Government of India has announced the Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020) (the �Scheme�) on October 23, 2020, which mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020, to August 31, 2020, by respective lending institutions. All lending institutions are advised to be guided by the provisions of the Scheme and take necessary action within the stipulated timeline." Note that in an early Diwali gift to borrowers, the Finance Ministry last week approved guidelines for the scheme for grant of ex-gratia payment of the difference between compound interest and simple interest for six months of loans up to Rs 2 crore. The guidelines came after the Supreme Court directed the Centre to implement interest waiver on loans of up to Rs 2 crore under the RBI moratorium scheme "as soon as possible" in view of the COVID-19 pandemic. As per the operational guidelines issued by Department of Financial Services, the scheme can be availed by borrowers in specified loan accounts for a period from March 1 to August 31, 2020. The lender will have to credit the amount to the account of the borrower on or before 5 November, giving relief to borrowers ahead of Diwali. Thereafter, the lender can claim reimbursement from the govt by December 15. It is worth mentioning that while interest on interest waiver will be applicable to borrowers who availed the loan moratorium fully or partially, those who did not avail it will also benefit from the government�s compound interest waiver scheme. Although the scheme includes all categories of loans, those who had availed a moratorium on credit card dues are expected to benefit the most from this interest waiver scheme.