At the beginning of the holiday season in India, the Ministry of Finance has delivered a cause for joy to those with outstanding loans. On Friday, the government issued guidelines for a scheme under which it would pay interest on interest for those who have or had outstanding loans (during the last six months) for MSMEs, education, cars, housing and even had credit card payments owed. , under the six-month moratorium on repayments announced by the Reserve Bank of India.
In a significant move, the benefit of the scheme would include those who took advantage of the moratorium, partially used the moratorium, and those who did not use the relief.
On Friday, the government issued guidelines for the scheme after approval by the cabinet committee on economic affairs last Wednesday. The order stated that the scheme for the ex-grati payment of the difference between compound interest and simple interest or simply put interest on the interest for six months for loans for MSMEs, loans for education, loans, loans for durable consumption, loans personal, auto loans and credit cards. the quotas have been settled.
The cost of this scheme to the government is expected to be in the range of Rs 5,500-6,000 crore.
This plan only covers borrowers who have loans up to Rs 2 crore. The CCEA had approved the proposal in response to the Supreme Court’s order on the exemption from compound interest or “interest on interest” during the 6-month moratorium period after the coronavirus pandemic.
The guidelines were issued by the department of financial affairs or the banking department of the finance ministry on Friday and sent to all nationalized banks, all financial institutions in India, all banking companies, urban cooperative banks, state cooperative banks and companies. financial housing for its implementation.
The guidelines also include details on how to calculate simple and compound interest and the applicable interest rate.
WHO BENEFITS FROM THE SCHEME?
The order establishes the eligibility conditions for the program. Any borrower whose total loans exceed Rs 2 million will not be eligible. This means that the plan benefits small borrowers.
The exgratia will be admissible regardless of whether the borrower made full use of the plan, made partial use or not of the moratorium on the repayment plan announced by the RBI.
The loan account must not be an NPA as on February 29 this year and the lending institution must be a banking company, PSB or cooperative bank, etc.
The calculation period for the scheme is from March 1, 2020 to August 31, 2020.
The guidelines also provide the list of credit institutions covered by the plan.
The government order establishes that the “crediting exercise of the amount in the respective accounts of eligible borrowers by the credit institution will be completed on or before November 5.”
Credit institutions can submit your request for reimbursement no later than December 15.
On Wednesday, top ministers and the Finance Ministry had refused to release the details before presenting them to the supreme court. But sources had told India Today that the Cabinet Committee on Economic Affairs or CCEA approved the proposal for an ex-gratia payment of “interest on interest” charged on loans during the moratorium period.
SUPREME COURT PUSHED THE GOVERNMENT TO ANNOUNCE RELIEF
The problem arose when the Reserve Bank of India announced a six-month moratorium on loan repayments. Based on this, borrowers could defer EMI payments during the moratorium period decided by the RBI. However, according to normal banking procedure, since the interest component was not deferred, it continued to be added to the principal amount. The addition to the principal amount would have meant a higher EMI number or a higher monthly payment after the moratorium period.
A petition was filed before the Supreme Court challenging this component of the moratorium and seeking full exemption from interest during the period, and the court had ordered the government to correct the image.
In response, the government’s affidavit had stated that for a select category of borrowers it would waive “interest on interest” on loans of up to Rs 2 million under the default scheme.
In the second week of October, the high court, in a clear directive, asked the union government to present a well-drawn plan on the scheme at the next hearing scheduled for November 2. The government will present the decision made by the CCEA in the Supreme Court.
The government held a series of discussions on the issue given the cost of the proposal and also the signal it would send to borrowers who, despite difficulties, did not take advantage of the scheme and paid their loan installments. That is why, finally, the decision was made that even those who paid their EMIs regularly and did not opt for deferral should also extend the benefits of the scheme.
During the latest Supreme Court hearing, the three-judge bench comprised of Justices Ashok Bhushan, Subash Reddy and MR Shah has emphasized that despite the government’s guarantee that it would waive compound interest and no timeline or Se presented a clear implementation plan.
Judge Shah during the hearing had told Attorney General Tushar Mehta that “Diwali is in your hands now.” Mehta has sought time until November 15 for the government to develop the modalities after informing the court that the RBI and the union government have identified eight categories and that the calculation would be made based on the interest component of each of those accounts. of loans.
However, Judge Bhushan had said: “Once the government has made a decision, there is no need to delay the matter further, as the interest of the common man is at stake, banks cannot take that long to provide relief. and leave account holders in uncertainty. “
The bank argued that with the interest of the common man at stake, banks cannot take that long to provide relief and leave account holders in the dark.
“Once the government has made a decision, there is no need to delay it further,” Judge Bushan said.
The Center recently told the high court that going beyond tax policy decisions already made, such as waiving compound interest charged on loans of up to Rs 2 crore during a six-month moratorium period, can be “detrimental”. for the general economic scenario. , the national economy and banks cannot assume “unavoidable financial constraints”.
The high court is hearing a number of petitions that have raised issues related to the announced six-month loan moratorium period due to the Covid-19 pandemic.
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