November 5 cutoff for banks to credit compound interest collected

(This story originally appeared in on Oct 27, 2020)

NEW DELHI: The Centre on Monday informed the Supreme Court that by November 5 lending institutions must credit into the accounts of borrowers who had availed loans up to Rs 2 crore the compound interest collected during the six-month loan repayment moratorium period and then claim reimbursement from the Union government.

“The central government has directed that all lending institutions shall give effect to the scheme and credit the (compound interest) amount calculated as per the scheme in the respective accounts of borrowers by November 5,” the finance ministry said in an affidavit.

The SC had asked the government to explain the mechanism to implement its decision to waive interest on interest for the six-month moratorium period for those who had borrowed up to Rs 2 crore, including MSMEs. The Centre had said the benefit would be available to those who had availed the moratorium, paid their instalments or had partially availed the benefits.

The ministry said, “Under the scheme, all lending institutions shall credit the difference between compound interest and simple interest in the respective accounts of eligible borrowers for the period between March 1 and August 31. The amount shall be credited by each of the lending institutions under the scheme irrespective of whether such eligible borrowers have fully availed, or partially availed or have not availed of the moratorium, which is deferment in payment of instalments.

“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 added.

The ministry said this decision was 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 stipulated class of borrowers for grant of benefits.”

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