The plan will be implemented even for borrowers who did not avail themselves of the moratorium.
Three weeks after informing the Supreme Court that the Center would pay the additional compound interest on loans up to ₹ 2 crore used by retail borrowers, as well as micro, small and medium-sized enterprises (MSMEs), the government formally communicated the modalities of the scheme . to lenders on Friday.
Banks and other lenders, including cooperative banks and non-bank finance companies, were asked to credit the difference between compound interest and simple interest for the six-month period between March 1 and August 31 in these loan accounts before November 5. This would be implemented even for borrowers who have not availed themselves of the moratorium on loan repayments allowed by the Reserve Bank of India (RBI) until August 31.
At its last hearing on October 14, the Supreme Court had rejected the Center’s request for a month to implement a plan to ensure that borrowers with loans up to ₹ 2 crore do not have to pay compound interest on accrued interest payments in your loans during the default period.
The high court, which had been hearing petitions seeking an extension of the RBI’s six-month moratorium on loan repayments, had given the Center until November 2 and said that “the common man’s Diwali is now in the hands of the government. “
“In view of the extreme and unprecedented situation of COVID-19, the purpose of the scheme is to provide the ex gratia payment of the difference between compound interest and simple interest through forms of relief for the period between March 1, 2020 and on August 31, 2020, to borrowers in specific loan accounts, ”the Ministry of Finance said in its statement presenting the outline of the scheme.
The plan will apply to MSME loans, as well as retail customer loans for education, housing, consumer durables, automobiles, as long as an individual borrower has a total outstanding loan of ₹ 2 crore or less, of all those loans. Credit card fees have also been included in the scope of the plan.
The ex gratia payment will be admissible, regardless of whether the borrower has availed itself of the moratorium in part, in whole or at all, the ministry said. However, this would only be allowed for loan accounts that had not been reported as delinquent assets as of February 29. A loan is recorded as a delinquent asset, or NPA, 90 days after the repayments are due.
A mechanism has been put in place for banks to claim the amount from the government, according to the letter sent on Friday to the RBI, the National Bank for Agriculture and Rural Development (NABARD) and all other financial institutions. Lenders must submit claims for repayment before December 15th through a special cell established at the State Bank of India (SBI).
Lenders have been asked to establish a claims redress mechanism for eligible borrowers under the scheme within a week, taking into account the guidance issued by the Association of Banks of India regarding the resolution framework for stress related to COVID-19.
To resolve lenders’ complaints while the scheme is being implemented, the scheme cell at SBI will work in conjunction with the Ministry of Finance.
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